Bridging the Valley of Death: Improving the Commercialisation of Research

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House of Commons Science and Technology Committee

Bridging the valley of death: improving the commercialisation of research

Eighth Report of Session 2012–13

Volume II

Additional written evidence

Ordered by the House of Commons to be published 22 February 2012, 18 April 2012 and 25 April 2012

Published on 13 March 2013 by authority of the House of Commons London: The Stationery Office Limited

Science and Technology Committee

The Science and Technology Committee is appointed by the House of Commons to examine the expenditure, administration and policy of the Government Office for Science and associated public bodies.

Current membership Andrew Miller (Labour, Ellesmere Port and Neston) (Chair) Jim Dowd (Labour, Lewisham West and Penge) Stephen Metcalfe (Conservative, South Basildon and East Thurrock) David Morris (Conservative, Morecambe and Lunesdale) Stephen Mosley (Conservative, City of Chester) Pamela Nash (Labour, Airdrie and Shotts) Sarah Newton (Conservative, Truro and Falmouth) Graham Stringer (Labour, Blackley and Broughton) David Tredinnick (Conservative, Bosworth) Hywel Williams (Plaid Cymru, Arfon) Roger Williams (Liberal Democrat, Brecon and Radnorshire)

The following members were also members of the committee during the parliament: Gavin Barwell (Conservative, Croydon Central) Caroline Dinenage (Conservative, Gosport) Gareth Johnson (Conservative, Dartford) Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East) Stephen McPartland (Conservative, Stevenage) Jonathan Reynolds (Labour/Co-operative, Stalybridge and Hyde)

Powers The Committee is one of the departmental Select Committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No.152. These are available on the Internet via www.parliament.uk

Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at http://www.parliament.uk/science. A list of reports from the Committee in this Parliament is included at the back of this volume.

The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in printed volume(s). Additional written evidence may be published on the internet only.

Committee staff The current staff of the Committee are: Dr Stephen McGinness (Clerk); Jessica Montgomery (Second Clerk); Xameerah Malik (Senior Committee Specialist); Victoria Charlton (Committee Specialist); Darren Hackett (Senior Committee Assistant); Julie Storey (Committee Assistant); Henry Ayi-Hyde (Committee Office Assistant); and Nick Davies (Media Officer).

Contacts All correspondence should be addressed to the Clerk of the Science and Technology Committee, Committee Office, 7 Millbank, London SW1P 3JA. The telephone number for general inquiries is: 020 7219 2793; the Committee’s e- mail address is: [email protected].

List of additional written evidence

Page 1 Roger Browne Ev w1 2 Plymouth University Ev w3 3 Professor Peter Dobson, Begbroke Science Park, University of Oxford Ev w6 4 Bournemouth University Ev w7 5 Scottish Lifesciences Association Ev w8 6 The University of Edinburgh Ev w10 7 Health Protection Agency Ev w12 8 Babraham Bioscience Technologies Ltd Ev w14 9 Frank J Morris Ev w15 10 United Kingdom Science Park Association Ev w16 11 Cambridge Enterprise Ltd Ev w17 12 RSPCA Ev w21 13 Mark A Phillips Ev w22 14 Engineering YES Ev w23 15 Simon Payne Ev w25 16 Groupe Intellex Ev w27 17 Professor Michael Ferguson Ev w?? 18 Dr Venketesh Dubey Ev w30 19 Yorkshire Cancer Research Ev w31 20 Professor R Charles Coombes and Professor Anthony G M Barrett Ev w?? 21 British Society of Plant Breeders Ev w33 22 The Royal Society of Edinburgh Ev w37 23 UK Innovation Research Centre and the Centre for Business Research Ev w42 24 Isis Innovation Ltd Ev w46 25 The University of Birmingham Ev w49 26 Geoff Lawton, Simon Campbell, John Dixon, Paul England, Peter Machin, and Alan Palmer Ev w52 27 Tokamak Solutions UK Ltd Ev w56 28 Dr Michael M Hopkins, SPRU, University of Sussex Ev w60 29 Society of Biology Ev w63 30 Plant Bioscience Limited Ev w69 31 Action on Hearing Loss Ev w71 32 Imperial Innovations Group plc Ev w75 33 Royal Society of Chemistry Ev w80 34 Drug Discovery Centre, Imperial College London Ev w83 35 The Publishers Association Ev w85 36 The Association of Independent Research and Technology Organisations (AIRTO) Ev w88 37 Midven Ev w92 38 The Academy of Medical Sciences Ev w95 39 Cambridge Environmental Research Consultants Ltd Ev w100

40 BP plc Ev w102 41 LGC Limited Ev w105 42 BioIndustry Association (BIA) Ev w109 43 Electronics Technology Network Ev w114 44 University College London Ev w128 45 Ian Phillips Ev w131 46 Plymouth Marine Laboratory Applications Ltd Ev w133 47 STFC Innovations Ltd Ev w135 48 The University of Oxford Ev w138 49 Smart Club for the East of England (SCEE) Ev w141 50 Smart Club for the East of England (SCEE) Committee Ev w142 51 Cancer Research UK Ev w143 52 Agricultural Biotechnology Council (abc) Ev w148 53 Institute of Physics Ev w153 54 UK Computing Research Committee Ev w156 55 National Farmers’ Union Ev w158 56 Ethical Medicines Industry Group Ev w163 57 Energy Technologies Institute (ETI) Ev w166 58 The Royal Society Ev w169 59 Golden Rice Ev w171 60 SETsquared Partnership Ev w173 61 BMT Group Ltd Ev w175 62 Campaign for Science and Engineering (CaSE) Ev w177 63 Novartis Ev w180 64 Met Office Ev w183 65 Association of Medical Research Charities Ev w185 66 Professor Michael Ferguson Ev w192 67 Professor Anthony G M Barrett and Professor R Charles Coombes Ev w194 68 Sir Gregory Winter FRS Ev w196 69 ADS Ev w198 70 Professor William O'Neill

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Written evidence

Written evidence submitted by Roger Browne, MD Futurology Limited Summary There is a gap/valley of death. A key reason is the different skill sets, behaviour and even values of those conducting research & development and those who have the entrepreneurial skills to spot a market opportunity and exploit it. Those developing the “new” are often so in love with their creation they assume the world will welcome “their baby” with open arms. Those with the skills to move from prototype to (say) bulk production, those able to promote the benefits of the offering, those able to kick open the doors of opportunity, are often not recruited to the team. Those working on products, services or processes that will address Climate Change issues face even greater difficulties, since they will often need to change people’s behaviour as well as have their new offering accepted. Picking winners is a most difficult task—but often there is no plan or approaches to catch proposals that are not funded but that emerge as strong opportunities sometime later. Work is already underway—The EU funded Climate KIC project—to increase the involvement of business and to help understand how to change behaviours. The focus of this work must not just be on research institutes, we need to address those best able (?) to commercialise the “new”—existing businesses. This is not a sprint but a marathon and a great deal of work will be required to change UK businesses so they are truly innovative and seek and welcome the “new”.

1. The gap In my experience there is a large gap between the “new” and the “existing”, there always has been and it hasn’t recently gone away! The gap exists whether the “new” is a new product, a new process, a new service or a new business model. It exists because there are always many who resist change, particularly those who fear that the “new” will encroach on their territory and negatively affect their income. The best example I have heard recently of this phenomenon, came from Prof. Fred Steward, Professor of Innovation and Sustainability, Policy Studies Institute, University of Westminster. Professor Steward, speaking recently in Brussels, pointed out that the wooden shipbuilders and sail makers [amongst many others!] did not welcome the advent of steam power and iron ships!

2. A problem compounded The facts that the existing providers often display “vested interest” mode, and that the prospective market is slow to react/accept the new offering both compound the problem. The problem is then further compounded because those researching/designing/developing the “new” are commonly good at technical issues but not so good in other areas—key areas such as ﬁnance, marketing and commercialisation tasks. Those at the research/design “front end” are often so in love with their “baby” that they believe that the market will immediately grasp the “new” and “beat a path to their door”. Seldom is this true. Vested interests abound! There is also an enormous amount of work to get a product from the drawing board or lab to market! A task that is often under-estimated and not considered until far too late in the development life cycle.

3. Skill sets Those at the front end often lack the entrepreneurial skills needed to understand the market needs [and more importantly the market “wants”] and the force of character to overcome the many hurdles between the research lab and proﬁtable trading. Perhaps more importantly the fail to see the need to engage people to the team that do have these skills. Outlining the problems that are likely to occur unless a complete team is assembled; isn’t an easy task and the messenger is sometimes at risk!” A few individuals do have a complete skill set—perhaps Sir James Dyson is the best example of someone who seems equally at home in the laboratory, as the board room, as the City of London. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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4. The Hauser Report Many have talked about the sense of bringing together the two key skill sets—research skills and entrepreneurial skills. The Hauser report recommended an approach—the establishment of TICs [Technology and Innovation Centres] but action seems to have been slow here. I recently visited EIT+ in Wroclaw, Poland and found that they were already moving in this direction and were planning to offer EU ﬁnance to local businesses who wanted to “pull” technology, from the local Universities, into their business. In my view this pulling from research towards business has to be the focus. Looking to commercialise existing research is ﬁne but pulling and even guiding the research is the way forward.

5. The Elephant in the room An issue that I find is rarely discussed is the task of “picking winners”. It isn’t easy! If funding is to be made available on some basis, then it is clear that some (projects) will secure funding whilst other will not. The basis is usually a group/committee decision by the funding body, based on their “corporate” view of the chances of commercial success. I do wonder whether the funding bodies are sometimes too academically biased and also not inclined to take risks. Increasing the business/entrepreneurial input to the decision making process should be investigated. I also feel that too often a few projects are funded with the result that the majority goes away empty handed. Those that are not funded should NOT however go away without support and guidance in their commercialisation task. Too often such support is not offered, and the potential to include the late starters is missed. I think this is an absolutely critical area—given that it is so difficult to pick winners. Providing limited support to those who fail to access funding allows a lightweight monitor of those that slip through the net so that, should their ideas show real commercial worth, they can be “captured” later. Too often the task is seen as funding the right research, to turn this around … perhaps the task should be funding and supporting the most able entrepreneurs. Many are serial entrepreneurs so this might not be as difficult a task as first seems? It’s clear, or at least highly likely, that a significant proportion of future growth will come from “clever” technology. Of concern however is the fact that a number of today’s large global businesses were built by entrepreneurs, mavericks even, who have excelled at spotting opportunities and reacting to them. It would be a shame if any “Facebooks” or “Groupons” of tomorrow were not included in the fold.

6. A common problem? I believe, for the reasons outlined in paragraph 1 above, that the gap exists in all, or almost all, sectors. One sector that I believe faces particular problems is the “Green” sector, the sector where addressing Climate Change is a particular challenge. As well as the problems outlined in paragraph 1 above, the green sector faces a special challenge because very many of the products (for example) that emerge from this work will require a change in behaviour—as well as acceptance of something “new”. Both are difﬁcult! This double whammy would under normal circumstances delay adoption. With the urgency that surrounds Climate Change this cannot be acceptable!

7. Issues already being addressed? The EU Climate KIC project is, to some extent, already addressing these issues in the green arena. Major planks of the work undertaken over the last two years are: (a) increasing the pull from business rather than the push of/from technology; (b) speeding products (for example) to market; and (c) Exploring the process of transition to a greener world. I submit that with the driving principles this project is going in the right direction although I don’t for one minute suggest is has, or will reveal, alll the answers! Dutch Universities have provided much of the input to 3) above and I spent two weeks as part of the Climate KIC project, in Wroclaw trying to draft a guide to commercialisation. I believe this guide, albeit in very draft status, together with a number of tools developed by the Dutch Universities could provide a helpful guide to those looking to commercialise “green” products, services or processes. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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I also looked at the way that EIT+ in Wroclaw are planning to fund a small number of businesses to “pull” research from University into their businesses, and I proposed an approach of support and lightweight monitoring of those who apply but fail to secure funding—see paragraph 5 above.

8. A shift in direction Much of the current focus [and therefore support/funding?] appear to me to be on Research. Whilst many will see this as the starting point there is a strong argument that often the successful starting point is the problem (that research eventually addresses) or the market gap/opportunity that beckons. It may be that “research” needs to receive the lions share of funding but I believe that encouraging businesses towards a more innovative approach is worthy of support also.

9. Existing businesses The focus of this work must not be just on research institutes, we need to address those best able (?) to commercialise the “new”—existing businesses. This is not a sprint but a marathon and a great deal of work will be required to change UK businesses so they are truly innovative and seek and welcome the “new”. Existing businesses can fail to understand the need to constantly re-invent themselves. They can fail to keep in touch with technology, thereby failing to keep their products fresh, their processes efﬁcient and their services leading edge. In short businesses can fail to realise what technology could do for them. It would be I believe, worth exploring some ways to get over to businesses the enormous range of things that technology can now do, the fact that very many modern products have at their base “clever” technology, and the risks they face from disruptive technology. One approach (that would open up the minds of business people?) may be some form of technology audit where opportunities to make a difference could be revealed. From this small start oaks may grow? The audit described above could also usefully seek information about where is the greatest opportunity to save costs. A Pareto analysis could help gain data on where costs are high and this could help focus the search/ inform the debate about where to look to apply “better” technology. The production of a simple paper describing a handful of typical, but really successful, innovations could pay dividends by helping businesses to see what is possible. It should/could feature innovations that have “changed the game” by altering a business’s costs, or by delivering a user welcomed new product or by enabling a technology based customer service. Businesses need to be persuaded to say what problem they really want solved, rather than assuming that a solution is not currently possible. This approach leaves, should it be necessary, the researchers able to say that something can’t be done at the moment. The question then becomes—”So what can you do NOW to help me?” To make the point that technology can help it may help to adopt or adapt a marketing/selling phrase from the UK circa 1970 ... “The answer’s ‘Yes’, what’s the question?” January 2012

Written evidence submitted by Plymouth University Q1. What are the difﬁculties in funding the commercialisation of research, and how can they be overcome? 1. Funding for the commercialisation of research per se is a complex issue and due to the restrictions on how public funding can be used in the EU, limits the options available for the UK government to intervene directly. This is a commercial issue and one where the provision of funding is linked explicitly to commercial risk factors. The “Valley of Death” is predominantly an SME factor when seeking to bridge the gap between R&D and ﬁnancing the creation and marketing of a product. This is particularly the case with early-phase start- up businesses. 2. Considering the HEI perspective, the SME sector is not the natural market-place for the commercialisation of their research, as it is often too fundamental in nature, and even where there is evidence of traction in the market-place, most success comes from working with larger corporate bodies. HEIs fully understand the Government’s necessity to pump-prime the SME sector (due to their predominance in the UK environment) and have, over the past few years, grown a support structure for SMEs via the HEFCE funded, Higher Education Innovation Fund (HEIF). Fundamentally, this has created an SME support and “engagement” mechanism in England, but has not necessarily created a healthy and vibrant escalator for the commercial exploitation of research from this source. 3. However, there is much evidence to show creativity in the HEI sector, through the prevalence of strategic IP commercialisation partners such as IP Group, Angle and Frontier IP Group. This mechanism allows HEIs to work alongside proven commercial expertise in the sector and enables them to access structured rounds of venture capital through a proven managed process. At Plymouth, we now have a balanced portfolio of commercialisation projects through working with our partnership with Frontier IP Group PLC, which enables cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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us to address a diverse range of development projects with larger Corporates and SMEs. These are commercial arrangements, but arrangements which allow us to use HEIF effectively to support demand-driven, early stage, proof-of-principle support as a stepping-stone to creating viable business cases for structured venture support. 4. In conclusion, HEIs should not be seen as the sole engine for SME support and engagement. We cannot force the creation of spin-out companies and more often than not, it is not viable to work with the SME sector. Of course, there will always be a natural spin-off from HEIs, whether this is in the form of licensed or assigned intellectual property, or a strong commercial case for the creation of a spin-out vehicle where the HEI has a proven platform technology. 5. The continuing support of Government to enable HEIs to provide clean “proof-of-principle” support for early stage ideas is essential, as there are many risks and uncertainties in taking that journey from concept to market, a journey which is often uneven and indirect with many obstacles and possible entry and exit points. However this support should not be dedicated to the creation of SMEs only, as in the US, licensing of technology is a far more rewarding path for HEIs and is a proven model for generating external funding for supporting spin-out activities. 6. From an HE perspective, we would like to see the Government providing much more strategic support for the creation of a vibrant “strategic IP commercialisation partnership” market and to work with the HEI sector in strengthening those links between academia and industry. Perhaps the introduction of national schemes such as “senior internships” or “industry-academia secondments” where the exchange of senior personnel can create productive and strategic relationships. A good example of strengthening those links is through Plymouth’s Growth Acceleration and Investment Network (GAIN) reinforces the role of the University as a catalyst for economic growth, connecting people, ideas and money to drive creation, growth and acceleration of successful knowledge based businesses. This platform enables the University to connect the expertise of its researchers with businesses, supply chains and investors.

Q2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 7. Generally, given the state of the global economy, it is increasingly difficult to get any real traction in the marketplace at present as investors are particularly risk-averse. Historically, there have always been significant difficulties in seeking to commercialise research in the bio-tech and pharmaceutical sectors given the gestation time necessary and the size of the investment required to see through extensive trials and testing—generally, this still remains the case. 8. More locally, Plymouth has made significant investment in its infrastructure within the marine sector; research strength recognised at an international level. This is a sector where regulation and access and substantial capital cost, risk and the exploratory nature of R&D, limits the ability of SMEs to engage and is only overcome by working through larger corporate engagement to access their SME supply-chain. 9. The common difficulty across all sectors has been the recognition that business wants to engage directly with the academic research expertise within HEIs, but this often proves difficult as there is an increasing challenge for the teaching and research loading on HEIs. Basically, researchers are finding it increasingly difficult to find the time to have face-to-face exposure with the commercial sector. The current Research Excellence Framework exercise offers a brave first-step in addressing the need for researchers to embrace the commercial world through Impact case-studies, but until HEIs have the capacity to allow their researchers to spend more time with industry, this will remain a key issue. Another difficulty is around cultural issues whereby both academia and the private sector operate under very different ethical codes of practice and restrictions imposed by businesses on the publication of results could potentially inhibit an academics ability to publish in scientific journals. 10. Possible solutions include the provision of dedicated funding from Government to buy-out key researchers’ time to allow them to work in industry on particular demand-led research themes (Industrial fellowships). Indirectly the greater integration of commercial and academic approaches will also enhance the “overall student experience” by contextualising conventional theoretical learning with commercial application. Encouraging and supporting more “cross-disciplinary research” to develop real, exciting and innovative solutions which appeal to a wider commercial audience. Through Plymouth’s “Interactive Systems Studio”, for example, graduate developers through a sponsored internship programme using technology more commonly associated with video games, can “bring to life” projects based upon the visions of individuals and the business community.

Q3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 11. In Plymouth there are no examples of UK-based research having to be transferred outside of the UK for commercialisation. 12. One possible suggestion of why this may have occurred could simply be due to the current economic climate, whereby SMEs lack funding and large corporates are reluctant to invest in exploitable opportunities when the technology is early stage and/or in an uncertain phase of development. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Q4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 13. The dedicated SME support instruments developed by Government in 2003 have provided a viable support structure for the engagement of the research base, particularly through the Grant for Research and Development package and the Knowledge Transfer Partnerships initiative. These were both built around proven performance of such support through the previous Smart, SMART, SPUR and TCS schemes. Both of these SME support instruments have been subject to external audit by PACEC previously and show that it takes between ﬁve and seven years for a commercial return to the UK government in the form of corporation taxes and the yield of taxation on UK company sales. 14. Both of these measures have been extremely successful in engaging with the UK’s research base through the HE sector. The need for innovation has not diminished in fact, given the current economic landscape initiatives such as these are vital. Plymouth has nationally been recognised in stimulating and supporting business lead innovation through knowledge transfer and has a UK leading reputation for KTPs. Through initiatives such as GAIN, its Innovation Centres and Enterprise Solutions gateway, businesses can access an entire range of expertise, services and facilities.

Q5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 15. This is unclear, but clearly the Government has reviewed the economic landscape and has refreshed the range of “pump-priming” and structural, fiscal instruments at its disposal. It is important to recognise that rather than create new initiatives, the Government’s approach to build upon or refresh existing successes is the right way forward. 16. As discussed above, the “Valley of Death” (a phrase coined in the early 1990s) is seen very much as an early-stage growth issue for the SME sector. The Government’s strategies are seen to offer a balanced package of “investment ready” initiatives for the SME sector, but will be very much limited by scale and volume of support that can be made available. As has been seen in the past, these are probably the right tools, but they are restricted by available Government funding and require applicants to invest significant resources in entering strict competition to access them. This is just a basic economic fact. 17. What is the incentive for the venture finance sector to invest in these high-risk projects? Fundamentally, this is a commercial decision.

Q6. Should the UK seek to encourage more private equity investment (including VC and Angel Investment) into science and engineering sectors and if so, how can this be achieved? 18. The Government’s commitment to public sector funding in respect of commercialisation of research will continue to remain of paramount importance, as there is increasingly a need to generate “uncommitted” funds for re-investment into teaching and research. At Plymouth, as set out in its Commercialisation Strategy, there is a real drive to diversify its funding base as a way to meet current financial challenges within the HEI sector. 19. In both cases, whether investment is channelled through Government or through private equity investment, this needs to be “money with management”. HEIs have a significant role to play in this process through knowledge exchange or industrial outreach programmes, in order to share and promote the benefits of working collaboratively to reduce the risk and cost of R&D/Innovation. 20. Investment in the Science and Engineering Technology (SET) sector has been proven to provide a long- term sustainable economic model globally. However, it is often difficult for the private investor to understand the complexities, opportunities and risks associated with it. Visualising the opportunities is beyond many investors without significant investment in technological and scientific due diligence, which is all too often derailed by large upfront fees. 21. Therefore, the Government, through the Technology Strategy Board, should consider providing support for translation of these investment opportunities via strategic IP commercialisation partnerships (such as those currently engaging in the HE sector—discussed in Q1 above). 22. As is currently the norm with these commercial partners, the UK Government could consider taking a royalty or revenue share of any future commercial successes supported through these mechanisms, to re-invest in more of the SME “pump-priming” initiatives as discussed in Q4 above.

Q7. What other types of investment or support should the Government develop? 23. The current Government should continue to provide structural support through mechanisms such as the Regional Growth Funds to provide the infrastructure for business to thrive. Plymouth in partnership with a regional newspaper was the only University successful in being awarded a £1M grant investment fund of this type, ﬁnanced by the Department for Business Innovation & Skills. 24. GAIN, another example, is a new model for economic development, putting Plymouth University at the heart of a virtual and physical ecosystem that draws together individuals and businesses to support investment cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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and innovation. Its offering incorporates an expansive physical infrastructure including on-campus pre- incubation space and services, Innovation Centres and a new £18 million Marine facility. 25. More generally in the case of the HE sector, mentoring of academics and HEIs by mature and established corporations and relevant government departments may help increase the number of commercialisation initiatives, providing prospective investors with the conﬁdence that the emergent management teams are equipped and skilled to translate research into viable commercial ventures. This may also lead to offering better incentives (reward/recognition) for both the academics and the professional staff involved in the commercialisation process. 26. HEIs and established large corporations may de-risk the translation of research outputs into viable and sustainable commercial activities more efﬁciently by adopting an Open Innovation approach, rather than a reliance on the creation of spin-outs as the default exploitation mechanism. 27. Alongside this and the other support discussed above, there is an acute need for education of the investor sector that allows them to understand and access SET opportunities. 28. To a certain degree the HE sector has addressed this within its own Technology Transfer function through the PRAXIS UNICO model. The commercial education and support accessed via this is recognised nationally and by commercial practitioners. This is all about maintaining and improving the professionalism of the Technology Transfer community with the intention of ensuring the HE sector deliver results expected by businesses in ways complimentary to each individual institution’s mission statement. 29. It is suggested that this model should be used as the Forum for dialogue with the investment sector, particularly focussing on SET investments. UK Government should be seen to promote this best practice and to provide subsidies for the investment sector to undertake the range of courses and fora that this currently offers. January 2012

Written evidence submitted by Professor Peter Dobson, Begbroke Science Park, University of Oxford 1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? There are essentially two main routes to commercialisation: by striking a license deal with an existing Company, or setting up a spin-off Company. The former pre-supposes that one has some form of protectable Intellectual Property (IP) and the means to form the appropriate contacts with companies in the market and then negotiate a deal. The latter requires that finance is available to start up a company. Both of these options have to be set against a background that it takes several years to develop and idea to a stage where it is ready for market and can start to generate income. With most high technology ideas that involve manufacturing something (as opposed to generating and embedding a bit of software) this timescale is typically in excess of 12 years. This is the biggest stumbling block: Investors generally do not understand this and are impatient to see a fast return (typically four to five years).

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? Yes, any operation that involves manufacture and involves capital intensive manufacture is very difficult in the UK, because investors do not want to take a long term view or risk. This applies across all sectors, from microelectronics, to new forms of energy generation and storage, and advanced healthcare ideas (especially point-of-care biosensors). In the latter there is often the added difficulty of getting regulatory approval that can add more time to the route to revenue generation. Regulatory issues also slow down and enhance the financial risk in a lot of renewable energy sectors too. Solutions to the problem of manufacturing investment could lie in having some form of Government guarantee to encourage investors to put funding into longer term projects. This could involve some form of minimum guarantee on the return on investment, but it will by itself give additional delay and red-tape in that a new level of technical audit will be needed and the question has to be asked “who would conduct such an audit?” Relaxing regulatory requirements is not desirable in the case of “health”; however for planning issues in connection with renewable energy, water provision, and agriculture there does need to be reform and a speeding up of the process.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? Much of the microelectronics and optoelectronics industry has now moved away from the UK. This is largely because of the lack of capital investment available. Much of the newer display technologies were originated in the UK, but few (if any) goods are made here and the “value” being returned to the UK is small. Lithium battery technology was both discovered and invented largely in the UK, but we have no sizeable companies in this area. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Most of the reasons are because of the difﬁculties in attracting capital investment, AND in not having the appropriately skilled workforce to take things past the early development stage. As a nation we have not put enough emphasis in our Engineering training on “making things”. Too many of our University Engineering courses are emphasising “modelling” rather than “making” and we lack the training of skills that used to take place in Technical Colleges.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

The setting up of the TSB was a major step forwards. Through its Knowledge Transfer Networks there is a steady improvement in connecting businesses together, to connect some companies with appropriate University groups and to generally improve the transfer of know-how between the HE sector and business. Knowledge Transfer Partnerships also play a valuable role in this area. The main issue here is one of “time”. Getting the evidence to show the beneﬁt of the new TSB initiatives will take an observation time on the same scale as that of the Technology Readiness Level timescales, ie: at least 12 years.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

With the current proposals of very limited investment, there will be virtually no effect. In fact it might even make things worse. The level of investment needed is around 50 times higher than what has been proposed.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved?

As mentioned in section 1, if a Government guarantee can be devised to assure investors that they will get some return eventually on their money this would make a difference. However, it does need careful auditing to ensure that there are sound technical and business reasons for the investment. We do not want to see a repeat of the ﬁasco in the US whereby Govt backing was given to Solyndra, a solar cell company that from the outset looked like a very unsound idea.

7. What other types of investment or support should the Government develop?

The Government has to invest heavily in training at all levels, especially in manufacturing. We need to bring back Technical College education, and we need to see a shift in emphasis in Universities towards practical engineering. The Government should also encourage (and provide funding) for training of researchers in the merits and processes of commercialising their research.

Declaration of Interests

I am the Strategic Advisor on Nanotechnology to RCUK and the Director of Oxford University’s Begbroke Science Park. I do not currently hold a Board position on any company. I am on the Scientiﬁc Advisory Board of several companies and organisations. January 2012

Written evidence submitted by Bournemouth University

1. What are the difﬁculties of funding the commercialisation of research, and how can they be overcome?

Lead times from first investment to showing any return. Together with uncertain return on investment. Difficulty of finding third party investors unless you have a good track record of success. Any investor requires a large share of the equity before committing any funds. The costs of protecting the IP are sometimes prohibitive. The discussions about who owns the IP can be protracted and difficult.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors?

From our experience medical areas and any areas with a very high risk of uncertainty of return.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

No experience of this. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? Some KTP’s have led to new products being designed, developed and delivered to the market place. In my experience grants for R&D and formerly SMART awards have also led to commercialisation of research. (eg Cannon Technology, Accurate Controls).

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? Uncertain, it is too early to tell. Lack of, or poor marketing by collaborating businesses has regularly prevented technologies developed by universities from achieving success in the market place. This needs greater recognition.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? Yes more seed corn funding would help as would more “proof of concept” (PoC) funding with guaranteed follow on funding if PoC is successful.

7. What other types of investment or support should the Government develop? As above PoC funding would help. A preferential tax regime for start up companies would help support innovation. A list of “industry/university brokers” who could assist linking industry to universities and assessing the relevance of university research to an industry would be a great help. February 2012

Written evidence submitted by Scottish Lifesciences Association The Scottish Lifesciences Association (the SLA) is the industry body for life sciences in Scotland. We welcome your Committee’s inquiry into the commercialisation of research, and the opportunity to submit to your Committee our views on the crucially important issue of the translation of the UK’s world class life sciences research into commercial application to the benefit of the economy. The Scottish life sciences cluster is of considerable importance to the UK and to the global sector. It consists of 640 companies and other organisations employing over 32,000 people. The SLA is fully funded by our many private and public sector members, including a large number of businesses as well as Scotland’s university medical schools. We welcome the emphasis on growth at the core of the UK Government’s economic agenda, and its determination that the UK should become a global leader in sectors such as the life sciences. We share that agenda with both the UK and Scottish Governments. Our purpose is to help grow life sciences businesses in Scotland as a key sector of the country’s economy, in support of the aspiration to double the sector’s turnover and Gross Value Added between now and 2020 as set out in the Scottish Life Sciences Strategy 2011.1 Clearly that growth will depend to a considerable degree on translating the UK’s and Scotland’s excellent life sciences research into commercial applications, and we have thought a great deal about the barriers to that happening more successfully. We understand why your Committee has identified as a key issue in this area the lack of funding for life sciences companies—what you have called the “valley of death”. The attraction of new sources of venture capital funding to the Scottish life sciences sector is one of our top priorities. However, based on our experience of working with companies of all sizes, we are not entirely at one with the Committee’s view that there is a funding gap for new spin out or start-up companies, at least in life sciences. We believe that the main funding gap is after the initial stage of a life sciences company’s development. We observe a reasonably satisfactory flow of start-up funding to new companies, with private sector angel funding and public sector funding from Scottish Enterprise being readily available. In our view, the “valley of death” in life sciences occurs at a later point when a company seeks to expand beyond that initial stage, and needs to attract more substantial amounts of venture capital to take it to the next stage of clinical trials or product development. It is at this crucial stage that so many good small companies with great ideas find it very difficult to secure the funding they need from the private sector. In general the public sector is not equipped to assist with the quite large sums involved, although the excellent Scottish Investment Bank’s Co-Investment Fund, whereby Scottish Enterprise co-invests with private sector investors, has been a great benefit to life sciences companies in Scotland. But for some SMEs seeking to expand, the reality is that they get bought out by bigger companies (often from outwith the UK) or they fail. Instead, the SLA sees the main barrier to the commercialisation of research as the great difficulty which many life sciences SMEs have in dealing with university tech transfer offices. We have attached as an Appendix our comments on this crucially important area in the form of answers to some of the Committee’s questions. 1 See www.lifesciencesscotland.com/media/14388/lss-strategy-2011.pdf cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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We trust that these comments will be of use to the Committee, and would be glad of the opportunity to give further evidence if that would be useful.

Appendix 1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? The Scottish university sector is renowned for the quality of its research. Per head of population, Scottish research papers are cited more often than for any other country in the world bar Switzerland. However, this has not in general translated into commercial development of life sciences research. There is a perception on the part of life sciences businesses, especially smaller ones, that universities have complicated and delayed the technology transfer process by sometimes over valuing technology that still needs significant development, and thus have been reluctant to see it used without long and very onerous conditions attached to its exploitation. It is often the case that this results in research not being commercially exploited at all. Over the past two years, the University of Glasgow has developed and introduced an “Easy Access IP” scheme to address this issue. The thesis on which Easy IP is based is that the primary role of universities is to create and disseminate knowledge, not create spin-out companies. The Glasgow Easy Access IP scheme assumes that only around 10% of IP generated by a university will be of significant commercial value—this IP is identified then commercialised/spun out by the University’s Research & Enterprise department. The rest is assigned on an exclusive basis and at no cost to companies expressing an interest in it, on three principal conditions: — that the company bidding for use of the IP sets out how it intends to use it to create economic growth in Scotland, with the concomitant jobs; — that the University is publicly given credit for any resultant commercial development/jobs; and — that the company does something to exploit the assigned IP within three years—if nothing is done then it is returned to the University. The SLA very strongly supports the Glasgow Easy Access IP scheme, which has been warmly welcomed by the life sciences sector, and believes that it should be used more widely to create commercial value from Scottish and indeed UK university research. We have pressed for its adoption by other Scottish universities, not least by making that case to the Scottish Funding Council. We are delighted that the Scottish Government now explicitly supports the adoption of Easy Access IP by all HE institutions in Scotland. We believe that the Easy Access IP scheme is a great step forward in terms of the academic interface with businesses, especially smaller ones, and we hope it quickly becomes the norm across all of Scotland’s universities, and indeed across the UK. It is of note that it is currently being adopted by the Australian HE sector.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? No comment.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? We value greatly the initiatives taken by the TSB to improve commercialisation of life sciences research. However, in our experience, it has proved difﬁcult to get SMEs to engage with the TSB process.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? Success of the UK Government’s strategies in these areas will depend on the policies being accurately targeted. In addition to what is already being done, the SLA would suggest that the approach currently being taken by the Scottish Government on access to IP (see our comments under Q1 above) be adopted by the UK Government also in respect of the HE sector in England and Wales.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? As already stated, the SLA agrees that the focus should be on attracting new sources of private sector venture capital into life sciences, but our experience is that the main funding gap is after the initial stage of a company’s development. We observe a reasonably satisfactory ﬂow of start-up investment in new life sciences companies in Scotland, with private sector angel funding and public sector funding from Scottish Enterprise being readily available. In our view, the life sciences “valley of death” occurs at a later point when a company seeks to expand beyond that initial stage, and needs to attract more substantial amounts of venture capital to take it to cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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the next stage of clinical trials or product development. It is at this crucial stage that so many good small companies with great ideas ﬁnd it very difﬁcult to secure the funding they need from the private sector. We would suggest that the UK Government should look at the success (albeit on quite a small scale in UK terms) of the Scottish Investment Bank’s Co-Investment Fund, whereby Scottish Enterprise co-invests with private sector investors. This has been successful in attracting private sector funding to life sciences.

7. What other types of investment or support should the Government develop? The SLA believes that business access to university research should be streamlined by the setting up of regional tech transfer mechanisms. Our experience is that each university having its own TTO can become a significant barrier to larger companies seeking commercialisation agreements with a number of institutions. As well as being supportive of Glasgow’s Easy Access IP model, we also strongly support action on streamlining the TTO process. We are therefore very pleased that the Scottish Government now intends to set up within the next two years an integrated Knowledge Exchange Office for all of Scotland’s HE institutions. Our members companies’ often difficult experience of interacting with the existing multiple TTO set up, with its different contract structures and variability of performance across institutions, means that we support this development fully. We believe that it might merit consideration in certain areas of England and Wales also. We do not argue for a single central tech transfer office in a region. We have found in discussion with members, including the universities and investors, that there is no support for a single organisation based in one location, remote from the universities in the region, and not aware of what is happening among academic researchers. We see the solution as being an organisation with commercially minded representatives in the universities who link to and are part of an Integrated Knowledge Exchange Office (in our case for the whole of Scotland) which handles the interface with businesses. And from this Association’s point of view, that organisation should employ people with knowledge of life sciences, not least within the universities with medical schools. There are great exemplars—all of the Californian universities, covering a population of 24 million people, operate through one TTO. February 2012

Written evidence submitted by The University of Edinburgh The valley of death can be encountered at various stages of the commercialisation process, but is most often acutely felt in pre and early stage company formations where there are gaps between the early stage/proof of concept nature of the technology and the beginning of increased production and generation of significant revenues. UK universities are significant producers of new companies but in general, these tend to be fairly early-stage propositions that need investment and the involvement of professional management to take them forward and to generate significant revenues. This process takes time as well as money and talent and therefore the perceived risk of such ventures is increased. The general economic situation, the lack of investment funding and the increased aversion to risk by investors, all increase the width and depth of the valley of death, and many otherwise viable propositions will either be stalled or lost completely unless action is taken.

Difficulties in funding the commercialisation of research and how they can be overcome 1. The successful commercialisation of research is only achievable if there is sufficient funding for good quality basic research in key technology areas in the first place. Government should therefore ensure continuing high levels of funding for basic (and applied) research. 2. Universities are significant generators of new technologies and of new companies that are established to exploit some of these technologies. However Universities are not resourced to take all opportunities through the full commercialisation process and, therefore, will often look for partners to co-develop the technologies or take a licence to exploit these technologies. Given the inherent and well-recognised lack of investment in R&D by UK companies, sourcing a UK partner for such work can be challenging. Potential solutions to overcome these problems may include: (i) Provision of a significant proof-of-concept (PoC) fund to demonstrate the commercial potential of new research discoveries and to bridge the gap between concept and commercialisation. Such funding would also help de-risk projects. Consideration should also be given by Government to co-invest in such PoC schemes alongside established investors. (ii) Increased funding for joint university/industry research programmes with the companies agreeing to fund 50% of the University’s full research costs (other 50% to be provided by UK Government through the normal mechanisms for funding university research) in return for the right (and obligation) to exploit the results of the programme.The recovery of full costs, and the right to exploit, will provide incentives for all sides. (iii) Re-establishment of funding for Knowledge transfer Partnership (KTP) schemes to encourage more University/industry partnerships. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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(iv) There is a level of stagnation in the Venture Capital industry that is partly due to reduced stock market performance across the globe and reduced opportunities for exits through Initial Public Offerings (IPOs) and trade sales. This stagnation places higher stress, and higher obligations, on the mid-range and Angel investor markets which are not always in a position to respond. Establishment of a co-investment fund, where the Government could directly invest in new companies alongside established investors, would help reduce this stagnation. As well as providing much-needed investment finance, such a fund would also help de-risk the investment proposition for other investors. There is a scheme run by Scottish Enterprise (the Scottish Co- Investment Fund) that is light-touch and widely regarded, that could be used as a model. However, that Fund’s passive nature (it is a “follower”) may need to be looked at, as better results may be delivered if it were to take a lead role. (v) The introduction of the Enterprise Investment Scheme (EIS) has resulted in a significant increase in the amount of money and private investors participating in the risk capital space. However, it has been apparent for some time that EIS defines the way these private investors invest—through restrictive rules relating to investment models, share classes, etc. EIS has in effect constrained the business angel sector, making it unable to effectively evolve its investment models to react to a changing investment scene. UK business angels now seldom invest alongside VCs and seed investments are made with that aversion in mind. A growing gulf between VC and business angels has effectively broken the funding elevator—making it unlikely for new companies to grow rapidly and to a size where real economic impact is made. Revising EIS to allow the creation of angel funds and to allow the use of derivative share classes, etc would be a step forward. (vi) Further to the above, removing stamp duty on early stage companies, and/or transfers from early stage investors into “funds” in which they participate, may also go some way to fixing the funding elevator. An unfortunate consequence of a relatively active business angel community, with the current EIS rules, is that small companies often have shareholder registers that run into three figures. This is seen by VCs and other lead investors as a significant challenge—given the need to seek agreement from such a large group. The perceived challenge may be greater than the real one, but it is the perception that informs the decision. (vii) Enterprise Capital Funds (ECF) have been well supported but few funds promote VC investment and fewer still practice it. An ECF2 programme for VCs with some guidelines on investment models, etc. may encourage more institutional investors and fund managers into that space. Right now, the term VC has to be regarded with scepticism. Most VCs invest at the growth and development stage. (viii) The valley of death is often considered to be a fault in the funding space but clearly a range of other issues at the very least contribute. A number of local initiatives for instance seek to fund the appointment of experienced executives into new companies or pre-companies. However, the capacity of such initiatives is very limited. Perhaps a national programme may be considered providing a percentage of the employment costs and allowing the employing companies to negotiate terms on the remaining percentage with some flexibility.

Sectors where it is particularly difficult to commercialise research Unless a technology is ready to commercialise, and importantly, generate early revenues, as soon as it leaves the research laboratory, then there can be difficulties in securing the investment the proposition may need. Web-based and software applications tend to be closer to market and tend to require less investment, but otherwise there are challenges. New technologies can be a particular challenge as there can be an increased requirement to prove the benefits and (significant) revenue-generating potential of such technologies. Cleantech propositions are finding it difficult to raise finance partly due to the unproven nature of their technology offerings and the requirement of potential investors for more data and results before they will consider investing. For example, a wind power company may have proven technology at the lab scale, but the venture capital community may want results at a megawatt scale before they consider investing. This would require a large-scale demonstrator to be built, which in turn requires high levels of expenditure, which in turn may require higher levels of investment than friends, family and angel investors could provide. Thus, the opportunity remains unproven due to a lack of suitable venture finance. This is a general issue for new companies—not just those in the cleantech space. The life science market has long been recognised as a particular problem area due to the longer term nature of getting new technologies to the market. New company propositions often find it difficult to raise sufficient levels of investment funding to enable them to generate sufficient results to pass required regulatory hurdles and can often run out of cash.

Examples of UK-based research having to be transferred outside UK for commercialisation Tens of thousands of sites worldwide have contamination of soil, groundwater and surface water by hazardous industrial chemicals. These chemicals, such as fuels and solvents, pose a serious and long-term threat to soils and water quality. With funding from Scottish Enterprise’s Proof of Concept programme, researchers at cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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the University of Edinburgh developed novel remediation technology for the removal of hazardous subsurface contamination (known as “STAR”). When no UK licensing partner could be established, the technology was eventually licensed to a Canadian company and is under-going successful trials in the USA.

Evidence that Government and TSB initiatives have improved the commercialisation of research There are useful lessons to be learned from the Scottish Enterprise Proof of Concept programme, which used to be highly regarded and its funding led to several successful new company formations in key technology areas. The University of Edinburgh’s biggest success was MTEM Ltd, which was established in 2004 and was the largest ever spinout from a Scottish university after raising initial funding of £7.4 million. Pre-company incorporation, the project team secured £200K from the Scottish Enterprise Proof of Concept award to support the commercial development of the patented multi transient electromagnetic (MTEM) survey technology, technology that could potentially save the oil industry billions of dollars per year. The PoC award was very helpful in proving the technology and directly led to the record initial fund raising. When MTEM was funded, the PoC programme regulation was relatively light-touch. Now however, over- regulation of the programme stiﬂes interest from potential entrepreneurs and there are potentially good prospects that are either now looking elsewhere for funding or potentially not being pursued. The Scottish Enterprise Proof of Concept programme is both evidence of a very good government intervention, but also one that is now devalued because of over-regulation. Knowledge Transfer Partnerships (KTPs) are an additional example of a good Government initiative.

Impact of the Government’s innovation, research and growth strategies on bridging the valley of death Government Innovation and growth strategies should be adapted to meet the needs of the market in the difficult conditions that affect the global economy, and also to create impact. The establishment of a co- investment fund (as outlined above), perhaps targeted initially at key industry sectors, would immediately increase the capital available for investment in innovative companies, as well as helping to de-risk these investments for private industry. It would provide an economic stimulus that would help bridge the valley of death. Unless the Government provides such a stimulus, the valley will remain deeper and wider for most companies and opportunities will be lost and many will fail due to lack of investment. It should also be recognised that University inventions may not be sufficiently broad to merit the creation of a spin-out company, but Universities can face considerable challenges when seeking to license these to UK based companies. With a few notable exceptions many UK firms continue to invest a lower proportion of turnover in R&D than their key overseas competitors. This is not only a problem in itself, since these inventions can require further development before they are market ready, but also has a secondary effect of leaving these firms poorly positioned to understand the outputs of University research, and hence many do not have the “absorptive capacity” to appreciate the potential of these outputs, or to assimilate them into their own activities.

Should the UK seek more private equity investment in science and engineering sectors? See above. February 2012

Written evidence submitted by the Health Protection Agency Q1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 1. The Government needs to take the issue of commercialisation of research and translating research into products seriously and this commitment needs to be underpinned by an effective mechanism of financial support. 2. The programmes supported by the Public Sector Research Exploitation fund (PSRE) such as “Interact” were very successful and ideally need to be repeated or for a similar fund to be established. BIS oversee the PSRE, but this is not currently providing any funding. The NHS has realised the importance of exploiting its IP by the formation of the NHS Innovation Hubs; these too suffer the same problems of being funded on short term monies with few options for support for the ongoing commercialisation of products. 3. Academic technology transfer partnerships need government support to draw innovations through the translational pipeline and expedite the delivery of benefits from these technologies. Follow-on funding to pick up the next stage beyond seed funds need to be more readily available. BBSRC have a specialised fund for this type of follow-on activity, but application is restricted to only those who were funded at the preliminary stages by BBSRC. 4. There are funding sources such the Technology Strategy Board (TSB) which do support translation of research into products at Technology readiness Levels 4–6. However there is no support from TSB, for commercialisation of products beyond Proof of Concept (PoC), moreover, the TSB funding terms & conditions cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:03] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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allow for only 50% of Full Economic Costs (FEC) to be recovered. Additional funding sources to provide support for PoC studies clearly need to be made available. 5. There is a complete lack of funding streams specifically designed to provide core support for commercialisation of research ideas that have progressed through PoC. 6. Research institutes need to be able to better engage with companies and promising academic groups without the need to cover FEC’s. 7. UK non-human primate (NHP) capabilities are government supported and are key to retaining a lead in this important area of animal models of infectious disease for pre-clinical evaluation of new vaccines and therapeutics. 8. Costs surrounding protection of intellectual property (IP), particularly the exemplification of patents is very difficult to cover and needs government support to retain IP within the UK.

Q2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 9. The pipeline to production of biological medicines inevitably involves transfer of manufacturing processes from laboratory via process development to pilot scale. These developmental production activities are expensive and not easily funded, but are a critical stage in the successful commercialisation of UK research. Little thought is given to manufacture by academic and other researchers and this stage then becomes essential for subsequent scale-up, cGMP manufacture, assay development and successful clinical trial. 10. Research funds administered by the National Institute for Health Research (NIHR) is primarily targeted at clinical research and administers a fund of approximately £1Bn. However, funding which supports clinical trials is too late stage in many instances, since it is the pre-clinical/translational research area which desperately needs this funding support, which is not covered by the NIHR funding rules. 11. In order to obtain regulatory approval, it is essential that the correct pre-clinical studies are performed. Our financial inflexibility from research councils and other grant providers currently precludes this as this area of translational research is not covered by any of them. 12. The MRC and Wellcome Trust have both issued statement of support to provide funding to bridge the Valley of Death (VoD), and we welcome that commitment. Both the MRC and Wellcome Trust have significant funds to support this translational research activity, but much of this work is pulled through from academia to the Public Sector; however, Public Sector organisations are not eligible to receive funding from these awarding bodies (or from other Research Councils). 13. The VoD inevitably requires cGMP manufacture for production of any biological medicine products; this activity is inherently expensive, as is the process development needed prior to manufacture. Support is needed to underpin the QBD (Quality by Design) ethos to ensure that advice is given (and received) at an early stage in the development process to help ensure that products can be successfully manufactured. Sites such as HPA Porton Down have significant expertise in doing this, but would like to see funding to support these activities at an earlier stage to avoid the problems that occur when many “bench level” interventions reach the process development or pilot scales. Early, correct advice is critical in the process of bridging the VoD.

Q3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 14. The majority of research which has been commercialised as a result of research undertaken at HPA Porton Down has been done overseas. This is mainly because of the cost recovery models used by UK-based bodies which provide funds to move commercialisation opportunities forwards; these typically do not cover FEC and for public-sector bodies, supporting the shortfall is becoming increasingly difficult. 15. A specific example is the commercialisation of the botulinum neurotoxin-based therapeutic product family. These were spun out by HPA Porton Down as a new company (Syntaxin), where the funding base came initially from Allergan (USA) and the product manufacture was performed by Diosynth (now Fujifilm Diosynth) also US based. 16. We need to ensure the funding base allows the value of our innovations stays within the UK.

Q4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 17. The Technology Innovation Centre (TIC) initiative/mechanism could be very useful but they need to be more numerous and flexibly arranged. Of particular note is the need for greater flexibility around formation of the TIC’s as these appear to be driven by BIS and Government Departmental politics rather than need and commercial return. There are a number of examples where there are institutes operating effectively as TIC’s but do not fall into the identified areas of support; infectious disease research & translation is one such subject area. Some of the research capabilities and activities within the HPA would fit very well into the TIC model. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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If badged as a TIC, this would open up the sites for collaborative projects through the TSB scheme as well as offering UK plc the capabilities that we possess in translational research and bridging the VoD.

Q5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 18. One of the key aspects in bridging the valley of death needs to be the development and evaluation of targets for the NHS and public sector bodies. Currently the commercialisation of research is not rewarded; this situation needs to change and a positive culture which encourages and rewards the commercialisation of research should be adopted. 19. There is clear need to use a different method of evaluating the impact of research which is performed. Academic departments look only at the impact factor of peer-reviewed journal publications, whereas for work performed in the VoD the impacts are different and the metrics should be to reﬂect these differences. 20. One way in which impact could be determined is by the use of health economic modelling. These models can be used to determine the effect of introducing a particular intervention on the QALY (Quality Adjusted Life Years) of the UK population. This would be an effective measure of not only the impact, but also of the potential value of such interventions.

Q6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 21. Yes the UK should be encouraging more private equity investment because it is currently insufﬁcient to support the number of high-quality opportunities in the UK but we are agnostic as to how this is achieved.

Q7. What other types of investment or support should the Government develop? 22. Sources of funding that would facilitate government and academic institutions to offer support to SMEs on a sub-FEC basis would be welcomed and are seen by us as essential. February 2012

Written evidence submitted by Babraham Bioscience Technologies Limited The Babraham Research Campus, south of Cambridge, is distinct in being the location of a publicly-funded bioscience research institute—the BBSRC’s supported Babraham Institute, and the home to 30 early-stage biomedical companies. The aim of the campus is to both undertake world-leading biomedical research within the Babraham Institute and to provide the infrastructure for and support the culture which maximises the collaboration between the academic community and the commercial organisations on site. In the 2011 budget, HM Treasury announced a £44 million capital investment at Babraham for the development of further commercial facilities to promote UK science jobs and growth. The Babraham Research Campus is operated by the Babraham Institute (BI) and Babraham Bioscience Technologies (BBT)—the wholly owned trading arm of BI with responsibility—amongst other knowledge exchange and commercialisation activities—for providing the services and infrastructure to the companies located on the campus. This submission is jointly provided from both organisations. We wish to comment primarily upon item 5 from the Terms of Reference. 1. Capital vs Recurrent Funding: We are much heartened by the approach the Government has made in supporting national infrastructure projects such as the capital project at the Babraham Research Campus. We remain concerned, however, that solely capital funding can only provide part of the solution, and can lead to less than optimum impact. There is a need for Government to consider the recurrent costs essential to maintain the infrastructure created. It is important to identify support (particularly in the early years) for the sustainability of facilities. This is particularly evident when funding is made available to purchase high-value highly specialised equipment; an additional need is to be able to provide the trained staff to operate maintain and analyse the output from equipment use. This would maximise any impact. 2. No one size ﬁts all: Different sectors have different challenges and where some of those sectors are concentrated or clustered in particular geographic areas there may be different needs. The issue mentioned in (1) above is pertinent. For example recruitment and retention of staff in Cambridge in Bioscience is very different from that of recruiting in the North West for a similar role. 3. Recruitment: There continues to be shortage of UK-based staff with the relevant experience. Hence we continue to need to look outside the UK for essential staff. This is particularly relevant with regard to the issues of non-EU visa regulations. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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4. Training: In taking a longer term view of this problem, we welcome any strategies that the UK Government would consider to encourage and support STEM careers particular at the school- leaver and A level stage of education. We are particularly interested in the introduction of apprentice schemes into the Life Sciences. 5. Likelihood of Failure: The “Value-of-Death” is about managing the risk of failure. The public sector needs to intervene where the private sector is unwilling to invest unilaterally—that does mean that there is an inherent risk of failure: that risk needs to be shared. To support Universities and Institutes in investing in early stage opportunities ( alone or with others) would be helpful. 6. Research Council’s Boundaries: We suggest that the boundaries between current Research Council remits need to be more flexible to allow research to become thematic rather than functionally based so as to more efficiently reap reward from public investment in translational research. For example, an ageing theme that seamlessly crosses NIHR, MRC and BBSRC boundaries would allow researchers to progress opportunities from early-stage biology through to therapeutic considerations without the worry that remit dictates the focus of funded research. The present strict remit definitions prevent, for example, the logical and necessary evolution and seamless progression of BBSRC-funded research to support therapeutic activities; there is a need to manage the BBSRC:MRC interface more proactively to meet the needs of industry. The same may apply to the BBSRC:NERC interface. Internal concerns about ownership of particular research areas by one Research Council or another and consequent reluctance to risk a perception that one Council is “straying” from remit, create a vacuum at the interface. 7. Small Business Relief: We are sure that you will have a number of submissions regarding the complexity of business rates, particularly where multiple units are assessed and the total remains limited to being less than £18,000 in order to qualify for Small Business Relief. February 2012

Written evidence submitted by Frank J Morris It seems to me that much of the funding for science and technology in UK is based on a “strategy of hope” as we used to call it in Arthur D Little. A certain amount, often not much, of resource is applied in the hope that something useful will come out of it. There are much better ways as even a cursory study of works like “Third Generation R&D” will show. I am an Engineer and Management Consultant with many years experience in technology-intensive businesses both hands-on and in advisory and management roles. I have no direct interest in research or research-based enterprise just a frustration that UK taxpayer resources are wasted at such a scale when there are much better strategies that could be applied. I have answered your speciﬁc questions below and would be happy to follow up if there is interest.

1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? A fundamental logical flaw exists because commercialisation will only occur if there is an adequately large pool of users prepared to pay to exploit the research. In other words, starting with the research is not the answer. You must start by identifying difficult problems that, if solved, would have commercial value. Then researchers can focus at least some of their effort on understanding aspects of the problem so that the problem eventually becomes solvable by engineers, designers, manufacturers etc. A key issue, often overlook by TSB etc, is to match research with the UK’s industry absorption capacity. So, for example, medical research fits the UK’s “big pharma” marketing machines well but EPSRC-related stuff does not get absorbed so well as we have such a weak semiconductor industry. A clear and positive UK example was research into the human genome which required some articulation of possible benefits before adequate energy was deployed in the necessary science and development and refinement of sequencing technology.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? Supply chains have become complex and global. A better science or technology widget has to find a buyer/ licensor within this mesh. These buyers are often middle-size companies whose technical management, especially in UK, rarely have the time to understand what is in the research pipeline. Knowledge Transfer Partnerships fail because they are more “science/technology push” rather than “industry pull”. A better answer would be to fund short sabbaticals to enable technical managers in SMEs to visit study tours to explore options—the scheme might operate in a similar way to UKTI’s Overseas Market Introduction Service but with better funding. Technology Advisors (challenge to find adequately qualified experts) could undertake a briefing at the company to identify strands of investigation, then develop a short study international, national or regional programme in which the technical manager is updated on possibilities with follow-through cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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help with licensing, process improvement funding etc. A web-based anonymous “cry for information” system might be deployed usefully here.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? A primary example is that of organic semiconductors where UK, especially Sir Richard Friend and his team at the Cavendish Lab, led the world but, despite forming and funding two moderately successful start-up companies, commercialization is now in US and Asia, as a result of the much higher concentration of technology adopters in California and supply chain companies in Asia. Almost all out semiconductor and software research is similarly exploited in America and Asia.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? Very little. The intervention scale is much too small to be signiﬁcant and it is more grant-aided “science/ technology push” than venture-backed “market/industry pull”.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? Minimal and possibly negative. The intervention scale is much too small to be signiﬁcant and grant-aided “science/technology push” is more likely to encourage small lifestyle initiatives than the commercial entities nurtured under venture-backed “market/industry pull”.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? In principle yes, but angels and VCs will not invest in science or engineering; they will invest both ﬁnancially and intellectually when there is a clear problem with a clear market being addressed by a credible team so there is a proﬁt possibility.

7. What other types of investment or support should the Government develop? These are risky investments and greater incentives are required to increase the pool, including more tax- breaks, co-investment funds and convertible loans. February 2012

Written evidence submitted by the United Kingdom Science Park Association 1. The United Kingdom Science Park Association, was created in 1984 and represents some 70 science parks in the UK, and is home to over 3,300 technology based firms, many of which have developed as a result of offering an appropriate innovation environment for the commercialisation of research arising from our Universities, our research institutions and from the private sector. 2. Research demonstrates the value of our members’ science parks in terms of their contribution to the commercialisation of science and technology, and in supporting the formation and growth of high growth, knowledge based firms. In their recent study on the impact of the Knowledge Economy, The Work Foundation made it clear that the Knowledge Economy is crucial to future economic growth whilst Government has recognised the importance of the work taking place on UKSPA Member locations such as Norwich Research Park, Babraham Research Campus, Harwell Oxford and Birmingham Science Park Aston in a number of recent visits and announcements. 3. Most Innovation Centres and Incubators on and off science parks are not set up as primarily profit making enterprises, even when privately funded; but use surplus funds to provide business support to early stage entrepreneurial businesses. The funding is used to support knowledge transfer and to enable SMEs access to venture capital through angel networks. Historically science parks have been leaders in facilitating the flow of IP rich spin outs from universities and other such institutions. We believe that specialised accommodation, and business and innovation support from science park management is vital to the successful commercialisation process, and we view this as a form of investment in our tenant companies. The current legislation on business rates is simply removing this investment and thus hampering our efforts to commercialise research. 4. Our Association now has serious concerns about the current rating arrangements on our science parks, and the damaging effect these regulations are having on the efficient development of the knowledge economy. 5. The legislation introduced under the last government in relation to void rates has proved to be a significant challenge to science parks at a number of levels. Our Members are now having to bear substantial additional cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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costs, which in turn is making it increasingly difficult to maintain vital innovation support services for our clients. 6. Innovation-Led incubators operated by most science parks are run as single buildings with a single rate assessment, rather than individual units within these incubators being individually rated. Members therefore have to pay full rates on vacant units. 7. Those incubators with individual suites that are rated independently also have to pay full rates after three months, so gain little from this concession. The costs on vacant units both compromise the ability of these centres to fund necessary innovation support services, and also mitigate against science parks keeping some space vacant available in order to provide early stage companies with grow on space at a critical stage of their development. 8. One of the important additional features of science parks is our offering of highly serviced grow on space that offers space to revenue generating companies in a very early stage of development as they emerge from the early phases of knowledge commercialisation. The provision of space generally referred to as “grow on” space, and good post-incubation after-care is often absolutely vital to the success, or failure of these companies. This grow on space by-and-large exceeds the small business rate relief, so provide no help to these critically important companies that are trying to compete on a global stage and build a future for our economy. 9. In the opinion of the members of our Association, there are three issues to address: (a) The 2007 rating list for many science parks reflect a time in the economic cycle when rents were high and that has translated into high rateable values. This has increased the cost of carrying vacant units up to a point where the original objectives of science parks are being compromised, and our Members will increasingly have to take any company into their centres to avoid financial failure. The prime space for research commercialisation is therefore being eroded, and will continue to be so under the current arrangements. (b) Science parks are being compromised in a more fundamental way because the demand to pay vacant rates on these relatively fragile centres, which have a wider stated purpose than simply property initiatives, is making them unsustainable. (c) In relation to business incubators these are usually rated as single buildings, which means the current small business rate relief system does not apply, and for those companies that have grown and moved into larger premises on science parks the level at which current relief comes into effect is too low. 10. With the current rating arrangements there is a very real danger that the profile of companies our Members accept onto their parks will become diluted as the pressure to fill space with any type of company increases. UKSPA Members have contributed enormous value to the commercialisation of research over the last 30 years, but feel that as a result of a generic rating policy, our previously valuable innovation space is being slowly converted into industrial and business parks status, no different to other generic business centres. 11. In a welcome bid to improve the economy, the coalition government decided to bring back a reformed version of enterprise zones. Such zones can benefit by up to a 100% discount on business rates, and we believe some of the fundamental reasons why the government decided to do this are demonstrate in the points above. An obvious extension to this policy should be to offer the same level of relief to quality assured Science and Technology Parks within membership of UKSPA. 12. UKSPA Members are ready, willing and able to make sensible alternative proposals that will make a significant difference to the commercialisation of research for the next 25 years, but to do so Her Majesty’s Government must recognise the value our science parks offer fledgling technology based firms, and be prepared to take action to resolve what could rapidly becoming a crisis in our sector. January 2012

Written evidence submitted by Cambridge Enterprise Ltd 1. Background Cambridge Enterprise (CE)2 is a wholly owned subsidiary of the University of Cambridge and its mission is to help University of Cambridge inventors, innovators and entrepreneurs make their ideas and concepts more commercially successful for the benefit of society, the UK economy, the inventors and the University. The order in which those benefits are listed is deliberately aligned with priorities of the University and strongly influences the way in which CE conducts its business activities.

2. Terms of Reference The Committee has invited written submissions to a series of questions and our responses are described below in the context and perspective of issues arising from fulﬁlling CE’s mission. 2 www.enterprise.cam.ac.uk cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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3. What are the difficulties of funding the commercialisation of research, and how can they be overcome? Successful commercialisation of university research whether through consultancy, patenting and licensing or forming spin off companies requires, in summary: — Generous funding of research to generate world changing technologies. — A policy framework from a university and its research sponsors that supports and rewards invention and commercialisation alongside research and teaching. — Professional personnel with adequate funding for investing in patents and proof of concept work, who can help capture research results capable of commercialisation and ensuring they are successful commercialised. Such activities can only be successful where the demand for technologies is robust. A major difficulty is that the demand by UK companies for innovative technologies arising from universities is both weak and diminishing as a result of the decline of the manufacturing and commercial research based sectors. The US is a major customer for UK inventions but the demand side is uncertain both there, in the rest of the EU and elsewhere, although the so-called BRIC countries are showing increased enthusiasm and interest. The process and procedures for effective technology transfer are well established but there is a major lack of appreciation and understanding of the time interval between speculating about a commercial possibility, and turning a gleam in an inventor’s eye, or a sparkle of diamond in a pile of sand, into a successful commercial product. While the contributions universities can make to economic development by induced investment in technology development and associated increase in employment are very significant and have been well documented, the returns to a university such as Cambridge is relatively modest compared to its research income. The need for well qualified people and financial support to achieve such success is clear in principle, but the timescales required, coupled with poorly articulated and unreal expectations make raising adequate long term funding for knowledge and technology transfer difficult in practice. In addition, once inventions have been identified, and preliminary markets speculated upon, there is a need for additional proof of concept or translational funds to add value to the very embryonic technologies and inventions that arise from university research. These are needed: — to explore and assess potential markets more thoroughly; — to prioritise commercial opportunities; — to protect IP portfolios; — to demonstrate proofs of principle; and — to reduce commercial risk for licensees and create more credible propositions for early stage investors. There is a shortage of seed stage funds needed to support transfer of technology from the laboratory, to form a company and to recruit a commercial team. The successful University Challenge Funds showed the way and a scale up of that initiative would be very welcome. HEIF funds are invaluable but subject to multiple uses and the scale of funding needed for spin offs is significantly more than is currently available from that source. To make the highest impact, seed funds need to be adequate, readily available, be easily applied and their management and stakeholders to have realistic views on their potential returns. Investment funds do not always provide continuity of funding, due to the fund lifecycle. SEIS/EIS funds, while providing great incentives for angel investors, are not always easily aggregated into easily accessible funds of sufficient scale, a general problem when using angel funding to fill the VC gap. Later stage investors tend to discourage further angel funding and introduce preference stacks and deeply discounted rounds that remove most if not all the returns from early stage investors especially from companies that, although ultimately commercially successful, may have required multiple significant funding rounds. Licensing deals, or a mix of licensing and equity based deals, is one way of preserving value for inventors and universities but recognition of the special status of publically funded IP by preserving the value of a small percentage of the equity would be a novel but major incentive to universities and their inventors to create more companies. Potential serial inventors who have seen later stage investors benefit massively from their efforts but with a modest personal return to themselves, can be much disincentivised against repeating the experience as a result.

4. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? Sectoral issues are very important and have not been given enough attention as the issues are complex and not subject to simple solutions. Progress has been delayed by crude generalisations and attempts to create “one size fits all “models of technology and knowledge transfer and inappropriate criteria being used to measure success. Research based industries and deep, IP rich, capital intensive industries such as the pharmaceutical and biomedical industries share a common language with the public research base and are more familiar with assessing early stage research results and the value of in-licensing technologies to achieve product innovation cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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ie “Open Innovation”. While success even in this heavily regulated sector is very hard to achieve, the market for products, the process of product development and the risk-reward balance are well articulated. However, the long term nature of such technology development brings its own challenges, as timescales do not ﬁt within traditional venture fund lifecycles. Development of a range of schemes to increase the variety of long term funding for pre-proﬁt companies is essential.

Industries that are equally capital intensive and IP based, such as consumer electronics and aerospace, present different challenges. They may own large quantities of dominating, background IP but much of their innovation is incremental in nature and inter-company cross-licensing of patents and IP is commonplace. The difﬁculty in disaggregating the value of the contribution of individual patents to any ﬁnal products in these sectors makes in-licensing of IP from universities less common but access to such IP as background may present major opportunities for long term collaborative research with industry: Rolls Royce and BP’s long term collaborations with Cambridge being excellent examples.

In industries that are less research or IP intensive, the challenges of commercialisation alter dramatically. The familiar patenting/licensing/equity based spin off model may be less appropriate for copyright or know- based business opportunities. Other models of knowledge dissemination for creating such “soft” start ups (ie closer to market know-how/copyright/consultancy based companies) through collaborative research and consultancy arrangements with the university become more appropriate. These are excellent forms of research commercialisation but may bring lower direct returns to the university and their success be less easily assessed by conventional metrics.

5. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

This is the absolutely the norm, not the exception, in the Cambridge cluster. Given the lack of UK and rest of Europe demand from companies and investors, local technology companies are “born global” and frequently are purchased by overseas, largely US based investors or companies as they grow. While not a spin off as such, Autonomy’s purchase by HP was a recent headlining example although as yet, and like a number of the following examples, the work force has been maintained locally. The UK has very few such top tier companies such as HP that could have carried out such a transaction and so indigenous companies are effectively forced overseas to realise value.

Examples from the University include Solexa, purchased by Illumina; Entropic, purchased by Microsoft; CDT, a majority purchased by US investment funds and then sold to Sumitomo; Paradigm purchased by Takeda and Psynova purchased by Rules Based Medicine. Q-Flo (carbon nanoﬁbres) obtained funding from Israel and Diagnostics for the Real World was funded by $6 million of SBIR funds to set up in California.

These are all examples of successful knowledge transfer in the broadest sense but, if retaining and developing such companies in the UK are objectives, they would be assisted by a consistent national strategy to develop companies beyond the early stage. Moving overseas because of manufacturing incentives (eg Plastic Logic expansion in Germany and Russia) can only be overcome if the UK government wishes to encourage manufacturing and offers incentives similar to those offered elsewhere.

As well this experience with spin-offs, CE’s three currently most lucrative licences are all to overseas (US) based companies namely Genzyme, Autodesk, and Accelrys.

6. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

HEIF and its precursors have proved invaluable in providing resources for increased commercialisation and, given the timescales involved, continuation of this or equivalent hypothecated funding, is essential for the foreseeable future. The Cambridge-MIT initiative spun off Praxis-UNICO, the important and inﬂuential training organisation that supports knowledge exchange, innovation and commercialisation of public sector and charity research for both social and economic impact.

TSB and RDA awards have greatly helped CE’s young companies in their technology and market development and R&D tax credits for those companies that move into proﬁt, have proved valuable. Whilst these initiatives do not provide funds to establish new companies as such, the supplementary funds provided, for speciﬁc activities, are a much valued contribution to early stage development costs and provide valuable leverage. CE has examples where the award of a TSB grant has helped provide the cornerstone for a further round of angel investment.

Innovation vouchers and the recently reinvigorated and popular SMART awards have been effective in promoting collaborations between universities and smaller companies and stimulating research activities. To generalise, schemes that give support for collaborations between academia and industry over multi-year periods (where the academics can obtain a deep understanding of understanding of industry’s problems and challenges (and vice versa)) are invaluable. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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7. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? Size is important: modest investments, even if well targeted, will lead to modest impacts and maintenance of at least the current level of support for fundamental research is essential to ensure the generation of technologies of the future. Given the very well documented efficiency and effectiveness of the UK’s research base and the role universities play as engines for economic growth, support for universities and the public research bases at a scale comparable to our competitors is both essential and justified. Introduction of “impact” as a significant metric into the Research Excellence Framework has raised the profile of commercialisation activities very significantly. It is worth noting that while this increase in profile is welcome, a concomitant increase in multiple lines of accountability required by the University’s many sponsors and stakeholders need to be managed very carefully to avoid creating significant additional management burdens and opportunity costs. To achieve long term success and significant impact, it must be recognised that research funding needs to be accompanied by adequate resources to ensure that effective knowledge transfer can occur and commercialisation leads to increased economic and societal impact. This should be regarded as an essential cost of doing research not an optional extra. While such supply side measures have been identified and addressed to an extent, addressing UK demand side issues is essential if the full benefits of such measures to the UK economy are to be realised. HEIF or its equivalent, coupled with proof of principle and, early stage seed funding are highly cost effective ways of valley spanning. CE’s track record is such that for every £1 it invests in a spin off, the companies are able to raise on average a further £75 reflecting the quality and value of the seeding process. The new SEIS scheme and changes to the EIS scheme should stimulate angel investment in technology based companies but, as mentioned, problems of aggregation, accessibility and scalability are concerns. Inevitably angels, even more than VCs, will prefer to invest in capital light businesses such as ICT and software companies. Such support helps early stage companies but these companies may encounter even deeper funding valleys to cross as they grow where substantial developmental investments are needed to take products to market. Even if such funding is achieved it must be recognised that, windfalls apart, the early stage investors, inventors and universities can be massively diluted as a result when a liquidity event occurs. Technology transfer from the university may have proved very successful but the returns to the founders may be relatively small and it is important that expectations are managed appropriately at the outset.

8. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? As mentioned, sectoral issues are very important here too as deep technology based companies which require vast investment over many years are unsuitable for VC investment, let alone angel funding except, perhaps, at the earliest stages. Angel funding cannot fill a VC sized gap and VCs cannot fill such a later stage gap. The result is under capitalised companies which may lurch from one small round to another and spend too much time fundraising rather than developing products and getting them to market. Company failures are far more commonly associated with cash flow issues than with technology failure. Encouraging later stage private equity investment could be useful but, at present, their focus and opportunities tend to be elsewhere. Measures are needed to incentivise longer term investments rather than investments that require an exit after around five years, as the case with the current VC funding model. These could include tax incentives to large scale investors such as pension funds. The SEIS and EIS schemes are valuable to early stage companies but have limitations as many universities outside the “Golden Triangle” of Cambridge, London and Oxford may have much less access to suitable angels, and the logistics of managing a large number of small shareholders can add an unnecessary burden to a small company. A route to pool SEIS funds into larger pots, and open up access across all universities, would increase the effectiveness of the scheme.

9. What other types of investment or support should the Government develop? Government procurement and SBIR type initiatives are key parts of the jigsaw as the government is such a major player in the UK market and especially in the NHS and the defence sectors. The growth of hi-tech industries in both US and Israel has been built on their public high investment in defence and, as one of the world’s largest employers, the NHS represents a major home market opportunity for the UK medtech sector in particular. SBRI schemes are very useful in this context and should be developed pro rata to match that of the US but the value of new initiatives such as the TICs are questionable, especially when funding is relatively scarce and investment in such initiatives is relatively modest. They have been encumbered with a trivial name and run the distinct risk of becoming self-serving and creating additional interfaces and barriers between universities and industry, distracting from already successful initiatives in this area. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Building upon, and investing signiﬁcantly in, successful initiatives is the way forward. February 2012

Written evidence submitted by RSPCA

Background

In December 2011 the Government published an Innovation and Research Strategy for Growth, setting out how it will work with business and the knowledge base to underpin private sector led growth. In the same week, the Government published its strategy for the life sciences, outlining how it will take action to make the UK a world-leading place for life sciences investment.

The Science and Technology Select Committee subsequently launched an inquiry into how the Government and other organisations could improve the commercialisation of research.3

The inquiry was launched with a list of questions on practical issues related to gaining funding for commercialisation of research: 1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 7. What other types of investment or support should the Government develop?

RSPCA Comments

The RSPCA does not have any specific comments on the individual questions. However, the Society does have concerns relating to the commercialisation of life sciences research in general, wherever this has the potential to impact on the welfare of animals or promote their commercial exploitation. These are detailed below: — The RSPCA recognises the potential economic benefit of the commercialisation of UK research. However, the Society believes that increased efforts to commercialise research should not come at the expense of ethical or animal welfare considerations particularly with respect to the use of laboratory animals in regulated procedures. Animals are sentient beings with intrinsic worth, not tools for research or commodities for commercialisation. Thus, when any new technology is developed a rigorous assessment of the ethical and animal welfare issues should be performed— consideration of the question of “what should be done” is as important as consideration of “what can be done”. — Funding allocation within the biomedical sciences should require demonstrable implementation of the Three Rs.4 The ‘Investing in UK Health and Life Sciences prospectus’, published in December 2011, states that the UK government will introduce a £180 million Biomedical Catalyst fund to aid the commercial development of new technology. If this fund required the highest standards of animal welfare, and research into alternatives to the use of animals, it would back up the government pledge made in July 2011 to work to reduce the use of animals in scientific research. 3 http://www.parliament.uk/business/committees/committees-a-z/commons-select/science-and- technology-committee/inquiries/parliament-2010/role-of-the-private-sector/ 4 The Three Rs were introduced in 1959 by William Russell and Rex Burch in The Principles of Humane Experimental Technique. They defined the principles of: Replacement—methods which avoid or replace the use of animals wherever possible; Reduction— minimising the numbers of animals used, for example by improving the experimental design and statistical analysis used in a study; Refinement—improving experimental procedures, and other factors affecting animals such as housing and care, to reduce suffering and improve welfare throughout the animals’ lives. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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— Additionally, it should be ensured that a move towards increased commercialisation of research does not reduce reporting or sharing of important technical innovations that impact on the application of the Three Rs in research that uses animals. For example, a new in vitro technique could be developed which could replace a research method that currently uses animals. If this were to become a proprietary technology, it could prevent the wider research community from using the technology and therefore the opportunity to reduce animal use would be lost. February 2012

Written evidence submitted by Mark A Phillips

I would like to make a small contribution to this inquiry and offer a number of examples, successful and not, based upon personal and close experience.

1. BRITEST Ltd

My ﬁrst major experience was probably one of the most successful and concerns the translation of research from a consortium of universities (Leeds, ICSTM and Manchester) to develop tools and techniques to improve the introduction of new products in the chemical and pharmaceutical sectors.

The factors that single this out were: — It addressed a major issue that concerned industry and so there was strong industry sponsorship. — Industry was actively engaged throughout the research and development phases.

The major challenge in transitioning from research to full development was that it was clear that the products needed much more development but no single company was prepared to fund this. This was largely overcome by a collaborative response including the DTI (prior to UKTI), the EPSRC and several industry sponsors, thereby spreading the investment and the risk.

This venture has now gone from strength to strength and is fully backed by industry through subscription. The reach of BRITEST has also gone beyond the UK and now operates across Europe, US and SE Asia.

In my view this spreading of investment risk is a major factor in many research to development transitions and in my own industry remains the focus of much attention.

2. Pharmaceuticals

Much early research in the pharmaceutical industry is now conducted by a combination of universities and small biotech companies (funded by various sources) as well as by “big Pharma”. The effect of this is that risk is spread across several organizations, all of whom stake less, but accept a lower reward for success. The advantage is that by spreading smaller investments across many “bets” the probability of some success is much greater, although the ultimate returns are not as great. This is a model that from an economic perspective is much more likely to yield a return than one where companies take big high-risk bets on a few projects.

Despite the success of major UK based pharmaceutical companies like GSK and AstraZeneca, there are precious few “feeder” biotech companies in the UK and limited translation of UK University research into full development.

I suspect a key reason for this is an unrealistic expectation of reward and up front payments by both Universities and biotech for the early (and high risk) stage that the project is.

3. Biotechnology

I am currently involved in the development of a new technology in a related ﬁeld, we are working with a small “biotech-like” company however their investment is limited to one to two parties with major interests. There are few other companies in the UK working in this ﬁeld and that in itself presents other issues. Access to talent is a challenge as is access to suitable supply chain and technology partners. The current venture has required input from organizations in the Far East, USA and Europe as very few UK based companies had the capability or capacity to support it. Those UK based companies that did engage have struggled to meet many of the demands of scale-up and lacked the capacity to provide input into the development process.

In ﬁelds like high precision engineering and robotics the UK appears to lack companies of sufﬁcient scale to engage in major manufacturing development programmes and we have had to look to Europe and the Far East to provide partners with the required capability. Ironically the ideas, design input and project management are all driven by UK companies, but as we look to translate this intellectual input into actual manufacturing capability the “gap” appears. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Declaration of Interests I was the ﬁrst Chairman of BRITEST Ltd. I am a full-time employee of GlaxoSmithKline. I am currently a visiting professor at Leeds University Business School. I am a supporter of CASE. February 2012

Written evidence submitted by Engineering YES This submission is made in response to the Terms of Reference—Item 7. What other types of investment or support should the Government develop? It is made by members of the Engineering YES management group. Engineering YES is a Big Society project harnessing voluntary contributions from experienced industry experts which allows engineering researchers to understand the gap that sits between their research ideas and commercial reality. Research students and staff work to understand what must be considered when putting together a credible business plan for a novel technology. The team running Engineering YES is drawn from a mix of business and academic backgrounds: — Dr Jo Gilman—Project Coordinator (Loughborough University). — Dr Jo Whitaker—Head of IP and Commercialisation (Loughborough University). — Ms Veronica Strain—Researcher Training & Development Manager—Enterprise (University of Nottingham. — Mr David Scott—Freelance Licensing and Business Development Consultant (Loughborough Beacon Rotary). — Mr John Boyes—Freelance Engineering Management Consultant (Loughborough Beacon Rotary).

1.0 Introduction We believe that one of the main issues facing researchers in Universities who would like to commercialise their discoveries is a fundamental lack of knowledge of how to go about it. There appears to be a misunderstanding that as long as an idea is good enough, then the entrepreneurs of this world will come to them and make it all happen. There is little appreciation of the time or effort required because the fundamental processes involved are not understood. This is far reaching and, amongst other things, includes a lack of appreciation of the mechanics of the process; lack of knowledge as to who possible stakeholders might be; a low awareness of external stakeholder drivers; language barriers resulting in an inability to communicate the beneﬁts of research to these groups and poor ﬁnancial awareness which limits their options to move forward. Therefore we believe that training is an essential element that is needed to build this bridge.

2.0 Engineering YES We run Engineering YES (Young Entrepreneurs Scheme). This is a 3.5 day training course that sits in the “Valley of Death” and bridges the gap between University Researchers and UK industry. The training is wrapped up in a team-based business plan competition and is open to Research Students and early career Research Staff from different Higher Education Institutions around the country.

2.1 Aims of the programme Our main aim is to build participants knowledge of how to commercialise ideas, as well as encouraging an enterprising and entrepreneurial culture in the engineering researcher community in the UK.

2.2 How it works Teams of researchers compete to create the most credible business plan for a fictitious engineering based discovery as judged by a panel of industry professionals. Participants come together at different hotel venues around the country for a series of workshop style “heats”. Each heat runs to the same format. Participants attend presentations from leading industry figures on all aspects of technology transfer and the commercialisation of engineering ideas, including: the requirements of a business plan; intellectual property and patenting strategy; raising and managing finance; commercial and marketing strategies, and case histories. This content is all delivered by successful entrepreneurs and industry professionals. They are also given access to a pool of experienced industry mentors drawn from commercial and engineering environments with whom they can book appointments on each afternoon of the course. During cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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these sessions, great initial ideas are often exposed as unworkable, which leaves the teams re-assessing their options and re-designing their plans late into the night. Ultimately each team will prepare an oral business plan presentation for their ‘imaginary’ engineering start- up company, with each member assuming a different Director role within the company (eg Management, Finance, Research and Development, Marketing or Operations). This plan is presented to a panel comprising business, ﬁnancial and academic representatives taking the role of venture capitalists.

2.3 2012 Competition In four years Engineering YES has grown from a local competition with just six teams, to our 2012 event in which we expect to attract 18 teams (around 100 participants). We plan to run three heats with six teams participating at each—in the South Midlands; the East Midlands and the North West of England. The top two teams from each heat win through to the Grand Final which is held at the Birmingham Science Park Aston. There are a range of prizes to be won for things such as the Best Elevator Pitch, Best Use of Intellectual Property and Best Teamwork for example, with the overall winner taking a £2,000 ﬁrst prize. We already have commitments this year for multiple teams from the Universities of Nottingham, Liverpool, Manchester, UCL and Loughborough, with some interest from Poland and the USA.

3.0 Management and Delivery of the Programme Engineering YES is fundamentally a “Big Society” project. It is managed by a collaboration between individuals from Loughborough University, the University of Nottingham and Loughborough Beacon Rotary. The original idea grew from discussions between Rotarian David Scott and a Loughborough University employee Andy Wilson. All the Rotarians involved in the management of the project give their time without ﬁnancial reward. All the industry contributors, mentors and judges also give their time for free and get so much from the event that they return to give their time year after year. The 2011 event received the active support of 14 speakers, 15 judges (including ﬁve Venture Capitalists) and some 20 mentors. University employees’ work on the project within their normal roles and the project coordinator takes a small payment to run the project. This structure will support our ambition to become an international event in the coming years as we work through our HE and Rotary networks to expand our reach from our centre in the Midlands.

4.0 External recognition The Engineering YES team were rewarded for their efforts this year when we were “Highly Commended” in the Enterprise Champions category of the National Enterprise Educators Awards. We hope this will help us build our credibility and proﬁle and thus our programme in the coming years.

5.0 Funding the Programme The cost per participant is £750. This covers a brieﬁng day delivered by Video Conference from Loughborough University, a 3.5 day course full board at a local hotel and the Grand Final. Historically the funds for this course have been drawn from the EPSRC Enterprise training budgets that came into Universities as part of the Roberts Agenda for additional transferable skills training for Postgraduate and Postdoctoral Researchers. This funding was allocated depending on the number of Research Council funded students within each institution. Therefore some Universities received hundreds of thousands of pounds, and others received just a few hundred pounds. This has meant that some Universities have historically not been able to raise the money to send researchers onto our programme.

5.1 Sponsorship From 2012, the EPSRC is withdrawing this funding source from Universities. Applications this year are harder to find than expected, with many Universities simply not being able to find the funds necessary to send their researchers. We are relying on the funds of the larger institutions and have managed to secure a small amount of industry sponsorship of places. Whether this strategy can sustain us in the long term is yet to be seen. So far in 2012 we have secured the sponsorship of one additional team through E.ON sponsorship, and are hoping to continue our relationship with Rolls-Royce who worked with us in 2011, as well as building new links with new supporters and sponsors. The Engineering YES business plan competition offers sponsors the chance to get close to some of the best engineering research talent currently working in our Universities. It is a great chance for them to engage with this special cohort of people, to forge relationships, and ensure that these entrepreneurs are aware of local employment opportunities and potential partners for their ideas so that they can choose to use their skills with local firms to benefit the local economy, rather than moving on elsewhere. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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6.0 Long Term Survival of the Programme We believe that the long term survival of our programme is at risk. We also know that it is a fantastic programme which delivers on many levels. Participant feedback is enthusiastic, full of learning, and demonstrates high levels of long term impact on researchers in many ways—one of the more notable results being the increase in researchers who think they will run a spin-out business at some time in the future. It is based on Big Society principals and delivers industry and business beneﬁts demonstrated by the willingness of high calibre individuals to return and give us their time year after year, and our ability to attract small scale industry sponsorship.

6.1 Why it matters The Valley of Death is why it matters. No amount of money made available to researchers alone will build your bridge unless the people you give it to can spend it wisely. We are in an information and knowledge economy, and this is one of the areas where there is not enough information or knowledge in the hands of the innovators in the Universities. Training programmes like this need to be nurtured and developed to ensure that the right information gets to those working at the cutting edge of research. We offer you a description of Engineering YES as one example of great programmes that are currently in existence in this country working to bridge this gap which hits the UK economy so hard. While we accept that Select Committees are unable to investigate the interests of individual cases, we hope that by bringing this to your attention it illustrates the will in this country both in industry and academia to facilitate this learning, and highlights the need to deal with the knowledge and information gap which is an integral part of any solution to this problem. February 2012

Written evidence submitted by Simon Payne 1. You can make a difference, so I hope to get your backing, support and involvement in an event that will celebrate 100 years of manufacturing in the United Kingdom (UK) in 2012 and help Small and Medium Enterprises (SMEs) in the UK develop an export drive. 2. If the UK is to rebalance its economy from the public to the private sector, and towards increased exports and investment, then it needs to find ways to encourage more UK firms to export. The focus is now on UK SMEs who currently export less than in other EU countries. 3. I know how daunting it is for an SME to try and tackle a global market. Eight years ago the Cambridge Technology Group set up XJTAG (www.xjtag.com), a subsidiary company specialising in electronics test software. Like many SMEs, XJTAG started by selling just in the UK; now over 70% of its sales come from exports. Much of what we have achieved has been from organic growth and some funding from within our group, while practical assistance and funding from UK Trade & Investment (UKTI) is helping us realise our global ambitions. 4. Over the past eight years, I have attended some of the best electronic trade exhibitions around the world; the most successful of which are held in Germany. Over this same period, I have seen a steady decline at UK electronics exhibitions, to the point where today the best attended electronics exhibition in the UK is held in a tent.5 5. Electronics is perhaps unique in that it has transformed almost every industry and all of our lives—and therein lies part of the problem. The technology industry is massively fragmented in the UK and each sector tends to put on its own small exhibition that is, more often than not, poorly attended, with an average of 1,150 people visiting events in the UK compared with 24,000 in the rest of the world.6 6. The UK does have some of the best research and development (R&D) in the world. As a country the UK is punching well above its weight with some of the best examples of UK innovation provided by the international businesses, products and brands that are developed in the UK. 7. But UK international companies aren’t exhibiting in the UK, so where is the central attraction for overseas trade visitors and investors to come and see the best of what the UK has to offer? 8. The UK needs its industry leading lights to help showcase what is great about the UK, and provide the international brand recognition that will attract overseas trade visitors and investors to the UK. SMEs in the UK can benefit greatly by exhibiting alongside these established players in the market who will attract interest from buyers and investors from around the world. 5 Southern Manufacturing and Electronics. 6 Showcasing electronics in the UK April 2009 Intellect. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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9. We need to look no further than Germany to see what can be achieved. Below are brief details on just two technology events, Productronica takes place every other year, alternating with Electronica. Both take place in November and are based in Munich. 10. Productronica 2011 reported a 34% increase in visitor numbers on the previous year it was held. 38,500 people from more than 80 countries attended the show, and the proportion of international visitors rose from 39 to 48%. (www.productronica.com) 11. The year before, in 2010, Electronica reported a total 72,185 trade visitors—with 47% of visitors and 59% of exhibitors coming from outside Germany. (www.electronica.de) 12. The good news is that UK trade event organisers are now working together to create an exhibition that would get the UK electronics/manufacturing industry back on the international events calendar, and attract significant overseas interest. 13. Between 16–20 April 2012, eight exhibitions will be co-located at the NEC Birmingham. Alongside National Electronics Week (NEW:UK) www.nationalelectronicsweek.co.uk there will be: Air-Tech, Drives and Controls, IFPEX, Plant & Asset Management, Electrex, IPEE and Mach 2012—which is celebrating 100 years of UK manufacturing achievement. 14. Mach (www.machexhibition.com) takes place every two years. In 2010 Mach attracted 20,000+ trade visitors. With your assistance we want to attract even more visitors in 2012 turning what should be a good event into a great one. 15. What can you do to help? 16. In the spirit of unity, co-operation and collaboration between the pubic and private sector: 17. TechWorld (www.techworld.uk.com) is a UKTI funded stand alone exhibition and conference currently due to run at ExCeL London in November at the same time as Electronica mentioned above. In 2011 TechWorld attracted an estimated 2,000 visitors and 190 exhibitors. 18. I have had a number of meetings with officials at UKTI and while some support has been forth coming for NEW:UK/Mach there appears to be some reluctance to move the TechWorld event. This may in part be due to the way finances are allocated and the length of time that it takes for budgets to be signed off. However I am sure that with your backing, support and encouragement that UKTI could be persuaded to move TechWorld to co-locate alongside the eight exhibitions above to the benefit of everyone involved. 19. The Technology Strategy Board (TSB) run a stand alone event called “Innovate” (2011 Innovate attracted an estimated 2,000 visitors and 180 exhibitors). I am sure that with your backing support and encouragement that the TSB would run their event alongside TechWorld, and the other eight events listed above. 20. It’s great to have ARM (www.arm.com) exhibiting, Cambridge Wireless (www.cambridgewireless.co.uk) championing the Wireless Zone and the Electronics Technology Network (www.etn-uk.com) sponsoring the IP Brokerage Zone at NEW:UK. 21. Now we need to encourage the involvement of more of the UK’s international business leading lights and organisations in the technology and advanced manufacture sectors to exhibit and showcase their technology at one event in the UK. 22. The UK’s international technology leading lights are doing a great job of exporting for the UK but as the vast majority of their clients are overseas and the UK only represents a small percentage of their business sales there is very little incentive for them to exhibit in the UK. 23. To create an effective international exhibition we need to have the UK’s international technology leading lights exhibiting and showcasing their technology in the UK to help us create a mega exhibition that will attract large numbers of overseas visitors and investors. 24. International businesses who are resident in the UK may consider that they have a corporate responsibility towards their host nation that has provided the social and economic conditions that have contributed towards their growth and development however this in itself is not enough to get their full support. 25. Please can you find a way to encourage the involvement of more of the UK based international technology leading lights and organisations to work together and participate in mega UK exhibitions that will get the UK back on the international events calendar? 26. SMEs also need help and assistance in marketing and sales to help them better understand the sales process, to have suitably trained staff and help with creating exhibition displays that properly interact with and engage trade visitors. Funding is need for this activity but also mentoring from more experienced exporters would help. 27. All too often marketing is seen as a dark art and sales as evil, something to forecast in a spreadsheet for the future. Businesses often lose focus and pursue the next R&D grant or round of funding for more technical development because feature creep becomes addictive and R&D never ends until the money runs out usually well before a commercial product is produced. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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28. Please can you help SMEs develop their sales and marketing ability and provide additional financial support for this activity both in the UK and overseas? 29. Please can you help civil servants have a better commercial understanding of the requirements of SMEs by arranging for them to have work placements with the organisations they are trying to assist both large and small. 30. Please can you invest in suitable exhibition centres that can accommodate mega exhibitions with conference facilities and breakout meeting rooms. Can any of the Olympic 2012 buildings be used for this purpose? 31. Please can you invest in life size telepresence/video conferencing facilities at centres in British embassies overseas and at major business centres in the UK. This would allow a number of one to one meetings to take place between SMEs and prospective overseas clients. This would provide a stepping stone approach to exporting and allow everyone to give their best and operate in their own time zone. Having a number of good pre-qualified business leads gives justification and value to going on an over seas trade mission or visit. It is also a green solution so has a great carbon footprint. 32. Please can you help unite an industry to create bigger and better showcase events in the UK? 33. Please can you act quickly? 34. The strategy being pursued out at the moment is to get event organisers too co-located at the same venue and working together, but importantly each event organiser running their own exhibition, each will appeal to a separate part of the technology market. This will increase the appeal of the event as a whole as there will be so much more to see and do offering value for money to both exhibitors and visitors. 35. With the right level of support an over-arching brand could be created to encompass all of the exhibitions that have co-located at the National Exhibition Centre in April. This is a golden opportunity to provide a link with the UK’s past and present achievements and showcase UK R&D, technology and manufacturing, and once again be at the centre of Industry of all Nations by calling it “The GREAT Exhibition” or “The GREAT Britain Exhibition”. 36. With London hosting the Olympics the eyes of the world will be watching the UK what better time could there be to show your support for UK technology and manufacturing sectors and help UK SMEs establish trading links to the rest of the world? 37. As Lord Coe, Chairman of London 2012 said on the BBC News “This is a country that is open for business and we need to use every opportunity we can off the back of the games to showcase the fantastic creativity, our fantastic businesses, our artistic endeavour, our sporting endeavour and most crucially what we are as a nation.” 38. There may be no quick fixes but there are opportunities that should be taken when they present themselves. I hope you will consider this to be one of them and go for it. 39. Your backing, support and involvement can make a good exhibition great for Britain.

Declaration of Interest 40. Simon Payne is the Chief Executive of the Cambridge Technology Group Ltd, Adiabatic Logic Ltd, Cambridge Technology Consultants Ltd, Cambridge Design Centre Ltd, Midas Blue Ltd, Midas Green Ltd, Midas Yellow Ltd, XJTAG Ltd and XJTAG Inc. He is the Chairman of the National Electronics Week (NEW:UK) Steering Committee. XJTAG is a sponsor and exhibitor at NEW:UK and has a founder membership with Cambridge Wireless. XJTAG has exhibited and been a sponsor of the UKTI event TechWorld. Cambridge Technology Group and its subsidiaries are members of the Electronics Technology Network. ARM is an XJTAG client. February 2012

Written evidence submitted by Groupe Intellex Declaration of Interest and Background Notes This submission is not founded upon any immediate or signiﬁcant commercial interest. Groupe Intellex is an international publication and business development agency specialising in technology transfer, networked services and new venture incubation. We lead several innovative projects within three streams: Networked technologies, Creative Media and the Environment. The author has been a champion of several innovative technologies, not exclusively limited to his longstanding experience in the telecommunications sector, and is a member of the IET, the CMA (a subset of the BCS) and the RSA. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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He has also served for seven years as a board member for a leading Further Education College. Between 1990 and 2003 he was a Council member of the Parliamentary Information Technology Committee (PITCOM) and more recently was a member of the advisory panel for the (then) DTI’s “Sciencewise” initiative to promote better dialogue between Scientists and Citizens/Enterprise to facilitate policy development. In 2011 he led a “Community Study Tour” to Sweden to gain a better understanding of the business impacts of infrastructure investment.

Response 1. General Observations 1.1 The Select Committee’s terms of reference, expressed in seven questions, places the general emphasis on “bridging”—the issue of easing (and funding) the translation of potentially valuable research outcomes into commercial applications and reducing the probability that many worthwhile ideas fall and die in the process. 1.2 The questions posed are largely focused on building better bridges. An alternative approach is to consider options and initiatives that reduce the depth of the so-called “Valley of Death” (or at least minimise the impact on fallers) to reduce risk and encourage venturing. 1.3 There are many suggestions available—not least those from “Angel” investors assembled by NESTA a year ago to consider a broader issue associated with start-up ventures. Some of those suggestions have been shown to be addressable by policy adjustments but many others remain.7 1.4 In one key respect the Science and Technology fraternity has a problem in common with every sector of the UK economy and one that has received insufficient governmental attention despite the implications for economic growth. 1.5 The UK’s digital infrastructure is in poor health relative to our nearest competitors (see interactive graph)8 and, despite Ofcom’s reassuring notes on domestic progress, we must all concede that in this digital territory we are “a developing nation”. The remedies have long been apparent but largely ignored in countries with excessively dominant Telco’s. Presentation by Dr. Peter Cochrane refers.9 1.6 The extent to which this relative digital deficiency impacts on innovation, enterprise growth and public sector costs, has been widely researched and, although broadly understood, has not yet moved policy makers and regulators to re-appraise their positions in any way other than to hope for a gradual get-well plan. In an increasingly digital world the quality factors (ease of use, flexibility, affordability, functionality and openness) of access networks makes a vital contribution to enterprise growth and, within that, the speed and efficiency of the commercialisation of research outputs. 1.7 What has not yet been fully understood is that “next generation access” should not be viewed as an “upgrade” to existing “last generation” networks based on copper technologies but is far more akin to a radical infrastructure transformation such as the nationwide conversion from DC to AC electricity that was finally completed in the 1950s.10 1.8 The prevailing “upgrade” approach (BT’s FTTC/ADSL2/VDSL and Virgin’s DOCSIS3) both represent compromises in functionality—claiming (unjustifiably in many cases, according to the Advertising Standards Authority and Ofcom) improved headline download speeds but doing very little for the many characteristics that can vastly benefit innovators and smaller businesses. Nor is there much reassurance in promises of future developments when these are already the norm elsewhere. 1.9 The list of local access network characteristics that (in a transformational approach) could be enabled include vastly higher upload speeds, customer-controlled service supplier switching, lower latency and packet loss, improved reliability, the flexibility of dark fibre availability, easier competitive “unbundling” and innovative local hosting capacity for, say, media and community services. These are just a few of the more- technical connectivity characteristics that have transformed innovative endeavor in other countries where “next generation access” is treated more as a high-quality but essential utility giving connectivity to a greater range of competitive services. 1.10 But beyond these technical features, and for innovative science-led enterprises engaged in the commercialisation of research outputs, the design characteristic of local access networks that is a key to collaborative endeavour lies in its local management. This is more-clearly seen in clustered environments such as science/business parks but, in the plans of the dominant incumbent players, there is alas no sign yet of any willingness to adopt local management and customisation to local needs. The default assumption is that Access (as distinct from services and content) is an undifferentiated national product with no local perspective. 7 www.groupe-intellex.com/editorials/18-gi-global/320-angels-find-devils-in-details.html 8 www.google.com/publicdata/explore?ds=z8ii06k9csels2_&ctype=l&strail=false&nselm=h&met_y=avg_download_speed& scale_y=lin&ind_y=false&rdim=country&tdim=true&hl=en&dl=en&iconSize=0.5&uniSize=0.035#ctype=l&strail=false&bcs= d&nselm=h&met_y=avg_download_speed&scale_y=lin&ind_y=false&rdim=country&idim=country:SE:LT:GB:DE&ifdim= country&tdim=true&hl=en&dl=en 9 See conference keynote Munich 14–02–2012: www.slideshare.net/PeterCochrane “FTTH @ Last”. 10 www.groupe-intellex.com/projects/19-broadband/214-this-is-not-an-upgrade.html cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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1.11 Looking at Sweden, with a total population barely equal to that of Greater London, the number of Service Providers is almost equal that of the whole of the UK—the principle difference being that in Sweden many more of these are intensely local and this diversity is fostered by local access network management.

1.12 Whilst this Select Committee—just like in any other specialist sector focus—must necessarily stick to its brief, there is no reason why it should not observe that these causes are connected and that in an inversion of John Donne’s sermon we should ask for whom these digital bells are ringing! More frequently they are ringing in extremely well-connected places overseas. New venture ideas also connect in places where business failures signiﬁcantly inform subsequent ventures and the essential digital infrastructure that supports them can easily be re-purposed.

1.13 With far easier, more affordable and better managed connectivity between enterprises and the research communities, innovation can be made easier and the “Valley of Death” be made far less terrifying. For example, within the JANET facility, universities and research institutions (and even schools) are well connected and yet the beneﬁts of that well-managed public sector digital network investment are not consistently available to enterprises engaged in the commercialisation of research outputs.

2. Responses to Speciﬁc Questions

2.1 Q1: Funding the commercialisation of research—leastways in the earliest stages of “proof of concept”— calls for relatively small amounts of money in an environment where future prospects are unquantifiable. “Angel” funding can play a key part but the vital contribution made by these small investors needs to be valued much more highly by policy developers. This is not a simple question of equitable treatment of mainstream financial services and “Venture Capital” funds but needs to take into account the significant additional value (experience, mentoring, supervision and collaborative networking) added by the Angel investment community.

2.2 Q2: Experience suggests that science and engineering projects that raise issues of public concern (eg in bio-physics, nuclear energy and some aspects of health services delivery that demand societal/behavioural changes) require intensive educational dialogue and engagement of the media and citizens in order to make reconsideration of policy possible. Scientists and researchers are not renowned for their communications skills and common solutions might include greater training and better, more-easily accessible, funding of dialogic exercises where these issues are not only matters of public concern but also impact on investor attitudes.

2.3 Q3: Intensive lobbying for particular research areas (for example in wave-power) without strong centrally-directed informed views of alternative techniques can lead to funding of second-rate proposals and the loss of commercialisation to other countries. It must be recognised that some countries have stronger motivation for particular research (in the case of wave power the Atlantic coasts of Portugal and Ireland and the Paciﬁc-facing west-coast states of America hold greater opportunities for realisation) and in many respects our R&D effort is too often focused on domestic perceptions of need and is insufﬁciently international.

2.4 Q4: TSB initiatives are not very highly rated in either the science or investment communities. Where however planning has encouraged the development of clustered knowledge-transfer ventures (eg in Cambridge and the Northern Ireland Science Park) the outputs are impressive. Generally speaking the active involvement of government agencies purporting to have commercial expertise (eg for inward investment) has a deadening impact on investment motivations.

2.5 Q5: see earlier footnote reference 43.

2.6 Q6: Yes. See answer to Q1.

2.7 Q7: See general notes in section 1. The complexity and ill-informed processes currently aimed at remedying infrastructure funding deﬁciencies suggest that without clearer direction of regulators towards achievement of national objectives and the development of mutual markets in areas of public utilities the scope for venturing will remain constrained by established forces. It should be recognised that fresh ideas and innovation will always run counter to convention and therefore government support should place a high priority 11 www.groupe-intellex.com/editorials/18-gi-global/93-broadband-infrastructure-investment.html cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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on what many would regard as “disruptive” developments. The alternative was outlined in a radio script written in 2003—“Sticking to the straight and narrow”.12 February 2012

Written evidence submitted by Dr Venketesh Dubey

HOW THE GOVERNMENT AND OTHER ORGANISATIONS CAN IMPROVE THE COMMERCIALISATION OF RESEARCH?

One of the main reasons for the bottleneck in commercialisation of research is the lack of infrastructure and suitably qualified commercialisation staff within the research organisation to take the research forward. On the Government part, there is a missing link that no external regulatory body exists for universities, like Ofsted for schools, to make them aware of the bottleneck. The HEFCE looks over the general investment of funding and output of the universities but it does not have any mechanism to see the bottleneck within the management. Although it may be argued that universities are autonomous bodies which do not require an external regulatory body, however, this view is flawed when it comes to internal functioning of universities, particularly for smaller universities. Such universities are run by a bunch of people at the top whose decisions on research and commercialisation are mostly political. The decision they take is unilateral and there is no mechanism to challenge or to overcome these difficulties internally/externally; even the so called “University Board” is not truly independent because they are recruited by the University Management Team. There are plenty of examples and evidence to support the existence of the bottleneck and strong ground to suggest that commercialisation of research in universities can be benefitted by constituting a regulatory body for universities. If the Government is really serious about the commercialisation of research the first thing they should do is to constitute a regulatory body for universities who can take independent view of researchers -this is likely to bridge the “valley of death”.

1. What are the difﬁculties of funding the commercialisation of research, and how can they be overcome?

The ﬁrst thing that comes in commercialisation of any research is to protecting the Intellectual Property (IP). This is an expensive process. University usually don’t have resources to provide support for this unless they see clear return on the investment and in most cases such decisions are political. On the other hand, one cannot directly go to a commercial unit to seek for commercialisation before protecting the IP. Also, there are no external funding agencies to support the IP protection and hence is the bottleneck.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors?

The common solution across the sector could be to establish funding agencies for solely supporting IP protection and provide support in commercialisation of research ie support should be available for post-research activities. Currently no such support exists exclusively within the funding bodies.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

If the infrastructure, support and encouragement are provided, there are no reasons why this should be taken outside the UK. Currently there is no way to get out of this bottleneck and no mechanism to report such difﬁculties. If a Regulatory body is constituted to look after the problems in commercialisation of research there could be a mechanism to overcome such difﬁculties.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

The more important question here is; has the initiatives taken by the Government and the Technology Strategy Board reached to the actual people who are involved in research? The answer is “No”, so regardless of such initiatives no improvements can be seen. Give the leaders of research a voice by constituting a Regulatory body!

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

There will be enormous impact of Government’s strategies on bridging the valley of death if they monitor how this is being implemented in a research organisation and how HEFCE funds are being utilised. 12 www.groupe-intellex.com/editorials/18-gi-global/93-broadband-infrastructure-investment.html cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? This could something be of a welcome approach for the commercialisation of research, however, the mechanism of such investment should be worked out. The main stumbling block in this case is who takes the lead, private investor or the IP creator? The way forward is to create a dependable/regional link between investor and investee.

7. What other types of investment or support should the Government develop? First of all the Government should create a direct link with Department of Business, Innovation and Skills and Technology Strategy Board with Universities. People with appropriate expertise from academic community should be included in the policy making and there should be a Regulatory body to monitor the internal functioning of research organisations. Government should invest in this infrastructure development and provide ﬂexible support for the potential projects to take research to commercialisation. This all can be achieved if there is an independent regulatory body that can monitor the resource utilisation and report back the bottleneck in commercialisation of research. February 2012

Written evidence submitted by the Yorkshire Cancer Research 1. Yorkshire Cancer Research is a regional cancer research charity and a member of both the Association of Medical Research Charities (AMRC) and the National Cancer Research Institute. The charity has an annual income in the £4–6 million bracket and has tended to over-spend on its charitable activities in recent years as a result of its healthy reserves position.13 2. The charity engages in the commercialisation of its research portfolio mainly through its Commercial Development Award (CDA) funding stream. It currently has investments in four spin-out companies and a pipeline of other projects hoping to start down the commercial road. The charity only raises and spends money in Yorkshire. Its aim is to commit around £500,000 annually to this activity. 3. The charity’s Commercial Development Officer, Morgan Williams, was one of the joint authors of the AMRC report “Benefitting from innovation: intellectual property advice for medical research charities” which was published in October 2011.14 4. The charity faces a number of key difficulties in commercialising the output of its research portfolio. A number of these challenges are not financial but relate to the attitude and knowledge levels of the researchers it funds, the time and skill levels available within University technology transfer units and the tension between the academic desire to publish for career advancement and the almost certain fact that without formal intellectual property (usually patent) protection there will be no commercial venture. We work with these challenges daily. 5. There are financial issues we face. As a research funder, we have many calls on our charitable funds and we carry a range of Awards across the research spectrum from basic science through Clinical Awards and onwards to our CDAs and other items of spending which are closer to the patient (eg surgical master-classes to re-train surgeons in techniques which are proven to save more lives.) With a limited pot of money to apply to commercial development projects, we can rarely afford to undertake a commercial project without contributions from others. 6. Various examples illustrate our current difficulties. Two of our existing spin-out companies have been trying to raise capital for their next stage of development over the last 18 months to two years. In each case over 200 separate sources of commercial funding have been approached without success. One of these companies has a world-leading position in prostate cancer stem cell technology. The other is working on cancer vaccine development. Both are routinely described as “too early stage” by investors. The charity’s investment into these two ventures is £838,206 and £265,750 respectively. Other co-investors in these ventures have similarly limited resources. Whilst the second of these ventures is now in the “deep freeze” and may come back to life in a more favourable funding climate, the former is truly lodged in the “valley of death” and may shortly face the prospect of selling its assets for what it can get for them and closing down. Whilst this may not result in the long-term loss of the key IP rights, which may be sold, those rights may be sold abroad. 7. A third venture came to us for funding almost two years ago. This company has invented a new type of speech valve which will be of great help to patients who have had their larynx removed, usually as a result of throat cancer. The new device will be capable of “staying in” patients for perhaps three or four times longer than the current market leader. So in addition to improving life quality for patients, it will save the NHS a significant sum. We have offered this company investment of £100,000 provided they can find the balance of the £400,000 they need from other sources. So far they have not been able to do this and our money remains 13 www.yorkshirecancerresearch.org.uk/ 14 www.amrc.org.uk/research-resources_intellectual-property cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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in the bank. The most common objection from commercial investors is that the market is limited in terms of size because there are only so many speech valves implanted and replaced each year. 8. A number of our spin-out companies have been founded and funded with co-investment from the White Rose Technology Seedcorn Fund (WRTSF).15 The WRTSF is now fully invested and is essentially no longer able to help when we look at new opportunities. 9. Another venture that we wished to pursue was a third incarnation of the Yorkshire Enterprise Fellowship (YEF) Scheme.16 10. Our discussions revolved around the concept of us awarding the Scheme £240,000 to fund specific cancer technology Fellowships at a value of around £40,000 each. With matched funding from ERDF, the cancer “sub-fund” would have provided around 12 cancer specific Fellowships. With the demise of Yorkshire Forward plus a number of changes to the scheme flowing through the ERDF requirements, the third incarnation foundered. Whilst we continue to talk to various parties about whether we can collaborate to found a similar scheme, we anticipate the key block to progress is likely to be a lack of money to help fund such a replacement venture. 11. Recently, we have opened discussions with the Sciences Bridges China (SBC) project which is currently hosted at the University of Bradford.17 We are exploring the possibility of the charity being the sponsor of two cancer technology specific Open Innovation Workshops where we would locate and then screen Yorkshire- based or developed cancer technologies that would be suitable for the SBC OI Workshop treatment. Those candidates would then be taken to China for the Workshop to meet with Chinese regional government funders and a range of possible financial and/or commercial partners. Whilst it seems likely we can impose terms which will guarantee healthy returns to us for non-Chinese markets, the Chinese market terms (remembering that by 2020 this will be the largest market in the world) will hugely favour the Chinese and technology and jobs will likely flow out of the UK for those projects which gain funding through this route. We feel this may be a price worth paying to give these technologies the best chance of success in their progress towards the patient. 12. A recent better news story concerns another spin-out company we fund, this time looking to perfect a plasma-based diagnostic test for early stage lung cancer. A funding round of £535,000 has recently been completed with the help of the Finance Yorkshire (FY) Seedcorn Fund which contributed £325,000.18 The charity’s share was £150,000 taking its total investment in this company to around £550,000. 13. For us, when we interact with the commercial world, the expression we hear too much, and which is often the reason why commercial investors refuse to participate in a venture with us, is “too early stage”. To us this means that the technology is not yet sufficiently advanced to persuade them to share the risk with us. On other occasions (see the speech valve case we refer to above) the potential level of financial return is not adequate to persuade partners to share the risk with us. 14. Our motivation to undertake this type of translational funding is because we want to move certain of the fruits of our research down the road towards the cancer patient. We believe that is what our donors want us to do. We have to do this on commercial terms as provided for in the relevant regulatory framework. We are trying to bridge the “valley of death” but we need help to do this. 15. Funds such as WRTSF and FY are required to invest their funds on commercial terms but their rationale is to make money. Being a charity, whilst we have to make these investments on commercial terms and hope for a return at some point, the “profit” motive is ultimately subservient to the patient benefit agenda; all these investments have to be made in line with our main charitable object. 16. The perception we have is that the requirement to generate profit is (naturally) influencing the attitude to risk in those who have control of these funds. Funds created with motivations in similar balance to those of the charities who do fund this type of activity might help in getting more cash out of the door. 17. Our inability to help deliver a third incarnation of the YEF Scheme frustrates us, because we saw the cancer sub-fund that would have been created as a commercial “pump priming” scheme, which would allow us to nudge cancer technologies on their first step along the road and then act as a feeder for our financially larger CDA scheme. (The scientist involved in the spin-out referred to in paragraph 12 above was awarded a YE Fellowship and used the money made available to unscramble a multi-party funded patent problem which was one of the necessary pre-conditions to attracting commercial investment.) 18. One of the beauties of the YEF Scheme was that in addition to direct financial awards, the Scheme allowed Fellows to receive mentoring and guidance from professionals and technology entrepreneurs who had “been around the block” with early stage technology ventures. 19. Schemes of this type, funded by central government, would be an excellent addition to the funding landscape. 15 www.whiterose.ac.uk/node/31 16 www.yorkshire-forward.com/helping-businesses/improve-your-business/innovate/enterprise-within-universities and www.yorkshire-forward.com/news-events/news/press-releases/yorkshire-enterprise-fellowship-programme%20 17 www.brad.ac.uk/science-bridges-china/what-is-science-bridges-china/ 18 www.finance-yorkshire.com/funding/seedcorn/ cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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20. Another issue that we face is the “disconnect” between science and commerce. In three of our spin-outs, we see the key scientific figure struggling to balance the time required to continue their academic work and duties with the time necessary to further the interests of the relevant company. Our perception is that, notwithstanding whatever contractual arrangement is agreed between the institution and the company, the key scientific figure struggles to be able to give the relevant amount of time and attention to the commercial activity. 21. Again, our perception is that, as yet, the “value” of commercial development within the academic community has yet to be fully recognised and appreciated. It is possible that the assessment of impact due to form part of the REF will bring a greater acknowledgement of the value of commercial development. This is an area where we feel we can have little impact. We can though, and do, seek to educate the researchers we fund on our view of the value of intellectual property developments and their key role in any process to commercialise the research that we fund.

Written evidence submitted by the British Society of Plant Breeders

1. Declaration of Interests 1.1 BSPB is the representative body for the UK plant breeding industry. 1.2 Acting on members’ behalf, BSPB licenses, collects and distributes certiﬁed seed royalties and farm- saved seed payments on certain agricultural crops. The Society aims to safeguard investment in future crop improvement by optimising the return to plant breeders on their intellectual property. It is a not for proﬁt organisation, funded by a retention on royalties, membership and licence fees. 1.3 BSPB represents virtually 100% of public and private sector crop breeding in the UK. It promotes members’ interests in technical, regulatory and intellectual property matters at national and international level. It is a member of the European Seed Association and the International Seed Federation.19 A list of BSPB members is appended.

2. Plant Breeding Plant breeding is the science and business of developing and commercialising new varieties of crop plants with improved yields, disease resistances, agronomic characters and quality attributes. Plant breeding delivers considerable ﬁnancial beneﬁts to farmers, primary processors such as millers and maltsters, users further along the food chain and ultimately the public. Today, plant breeders are extremely mindful of the need to improve productivity without detriment to the environment.

3. The Relevance of Plant Breeding to the UK Economy and Global Challenges 3.1 Improved crop varieties provide the essential foundation for the UK’s £86 billion food production chain, the seed corn that produces the seed that the farmer sows. The economic benefits of plant breeding range from increased productivity at farm level through to import substitution, export earnings and enhanced processing quality within the food and drink manufacturing sector. Plant breeding for sustainability traits (improved resource efficiency, resistance to disease, resilience to climate change etc.) will reduce the impact of agriculture on the environment and benefit the economy by lowering the costs of alternative mitigation/adaptation strategies. 3.2 Independent work by NIAB (Reanalyses of the historical series of UK variety trials to quantify the contributions of genetic and environmental factors to trends and variability in yield over time, shows that between 1947 and 1982, around half of the yield gain of major UK cereal crops could be attributed to plant breeding, equal to the contribution of other factors such as improved agronomy, machinery or inputs. Since 1982, however, the contribution of plant breeding to yield gain has increased to more than 90%.20 3.3 A 2010 study by DTZ found that the annual contribution of plant breeding in three key crops (wheat, barley and forage maize) exceeds £1 billion in additional value within the UK farming and food supply chain— a 40-fold return on the £25m annual royalty income on those three crops. Copies of the NIAB and DTZ reports are appended. 3.4 The 2011 Foresight report on Global Food and Farming Futures, the Royal Society’s report Reaping the Benefits and many other recent reports by high level bodies looking at the issues behind John Beddington’s “perfect storm” have highlighted the role of plant breeding.21, 22 It is clear from all of this that plant breeding is the single most important tool to deliver solutions to the challenges of food security, climate change and the more efficient use of resources as well as making a major contribution to economic growth. 19 www.euroseeds.org and www.worldseed.org 20 TAG manuscript TAG-2010–0215.R2, Mackay, Ian; Horwell, Andy; Garner, Jane; White, Jon; McKee, Juno; Philpott, Haidee. 21 www.bis.gov.uk/foresight/our-work/projects/current-projects/global-food-and-farming-futures 22 http://royalsociety.org/Reapingthebenefits/ cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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4. Funding Plant Breeding 4.1 Plant breeding is long term and expensive. In general the period from first cross to commercial seed is around 10–12 years. Breeding has been a private sector activity in the UK since the Government’s decision in the 1980s to stop funding near market research and sell the Plant Breeding Institute. Plant breeders in the agricultural sector derive their income from royalties, provided for by Plant Breeders’ Rights (PBR) legislation. Royalties are paid on certified seed supplied by seed multipliers (agricultural merchants) and on farm-saved seed (seed that is saved by a farmer from his own harvest to be re-sown on his own holding), the latter at around 50% of the royalty paid for the use of certified seed. The total income available to breeders is relatively inelastic and equates to around £40 million per year in the UK across all crops. Plant breeding is a high risk industry, breeding companies need steady state investment but have variable income flow; winners have to pay for losers. There are no new entrants and the vast majority of the UK breeding programmes in our major crops are now in continental or global ownership with investment decisions being taken on a European or broader level. 4.2 Plant breeding is a highly research intensive business; around 40% of the breeders’ royalty income is invested in R & D. Plant breeding is also expensive, a competitive wheat breeding programme costs £1.5 million to £2 million per annum. This level of spend is sufficient for breeders to continue to make incremental advances in variety improvement but not enough for investment in the R & D that has the potential to lead to step changes in genetic gain (eg development of hybrid systems in wheat, nitrogen use efficient or drought resistant crops, use of synthetic wheat and exotic species to capture novel genetic variation). Public/ private partnership is the way to achieve this, pulling through the research of the UK’s internationally acclaimed plant scientists but the Valley of Death is a very real barrier to innovation.

5. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 5.1 Commercial plant breeding is the only route to market for the output from public research into plant genetics and breeding but: — commercial breeders have only about 5–10% of their R & D budget available to contribute to strategic R & D; maybe only £1 million pa across the whole industry, which is not enough to fully fund the work that is needed to draw academic research into commerce; — policy makers do not recognise sufficiently that advances in plant science can only be delivered to the market and contribute to economic, environmental and other policy objectives through a vibrant and financially robust, commercial plant breeding industry; — nor do they recognise that plant breeding in the UK is a tiny industry with exceptionally high R & D: turnover ratios which literally supplies the seed corn for everyone; — publicly fundedR&Disrarely supported to the point at which it can be taken up and used in a commercial plant breeding programme; — even when translational work is to be supported, there is often no clear understanding of the commercial timescale from transfer to market, which is significantly longer in plant breeding than in many other sectors; — sometimes research organisations over-value the worth of their IP; companies can be deterred from entering into collaboration with academia where the upfront demands for use of IP are unreasonable and unrealistic; BSPB is not aware of any LINK projects involving its members that have led to patents in the last decade; and — there is a mismatch between the understanding of the public sector research funders, some academics and the industry of what constitutes research that can be taken up and used in the commercial sector. Research funders and practitioners often claim to have “solved” a particular research challenge when in reality they have completed a piece of fundamental work which though excellent in itself, is not capable of delivery into a commercial programme. A perfect illustration of this is work presented recently on the BBC’s Farming Today (24/01/2012) in which it was claimed that a new technology would allow scientists to develop new salt tolerant rice cultivars, with commercial seed available within one to two years. The research described is a significant advance but the claims for speed to commercialisation were hugely exaggerated. The downstream work in taking this from discovery, through marker assisted back crossing, cleanup, seed bulking and field testing, is still required. The delivery timescales into agriculture are more like 10–12 years for simple traits and much more for complex ones. The one to two year timeframe is just the first step in the process to the point at which the lab scientist publishes. The work is then at high risk of plunging headlong into the valley of death unless there is funding for the routine hard work of development, validation and transfer to breeders who can then commercialise. This is summed up perfectly in a slide used by BSPB’s vice Chairman, Richard Summers, in May 2010, see below. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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5.2 Public sector funders of research have responded to a stream of messages about the need to support translational research in the last two to three years and a number of crop science related initiatives have been established by BBSRC, Defra and the TSB. BBSRC has stated its commitment to “excellence with impact” and the TSB was set up speciﬁcally to sponsor industry-led R & D. This is all positive but industry’s concern is that this will be seen to be “job done”. For the investment to have been worthwhile, there must be a mechanism and further funding to carry out what will often be routine, tedious and not very glamorous research, to move the output from these projects into something that the commercial breeder can use. It is not clear how this will happen. Action and knowledge transfer are needed, not warm words.

6. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors?

6.1 Plant breeding.

6.2 In addition to the “valley of death” problem, the regulatory and market environment are not conducive to the commercialisation of plant science research through breeding. It is clear that in the case of agricultural biotechnology the regulatory authorities are not keeping pace with the speed and dimension of innovation. The pragmatic decision of BASF to relocate its European GM activity to the US was made against a hostile regulatory background. The speed of innovation in plant breeding in the UK and more widely in Europe is also at risk from European regulators’ ongoing assessment of a range of novel breeding techniques and their potential reclassiﬁcation as “GM”. If any, or all of the techniques that are under review should be classed for regulatory purposes as GM and plant varieties derived from them become subject to the regulatory burden that currently blights the potential use of recombinant DNA technology in Europe, European industry and society will not beneﬁt from faster innovation and acceleration of genetic gain that these technologies offer.

7. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

Plant breeding companies operate Europe-wide or globally and take R & D investment decisions on this basis. Investment follows the market. The UK wheat acreage/value is similar to that of Germany but only half that of France. The value of the USA market is increasing as the university sector contracts and the private sector starts to invest. All GMR&Disfocused on markets outside Europe as the EU regulatory climate is so unattractive.

8. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

Plant breeders have welcomed the relevant TSB initiatives which are expected to deliver research with direct and meaningful commercial impact. TSB has encouraged greater dialogue between industry and research organisations and resulted in many well-structured consortium projects. TSB should consider conducting post- project audits to appraise and evaluate the commercial uptake and progress, also the application and management process which is overly bureaucratic and expensive. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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9. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 9.1 The decision to include Plant Variety Rights in the Patent Box regime for favourable taxation of profits from IP is welcome and regarded very positively by the industry; the HMRC/Treasury consultations on this subject have been open and genuine, taking account of the views of this sector and the tax benefits will help companies’ ability to invest in innovation. 9.2 The Government has highlighted a need for the UK to strengthen its ability to accelerate the commercialisation of emerging technologies. This is a welcome statement. The plant breeding industry looks to the Government to speak out in relation to discussions in Europe around the regulatory status of novel breeding techniques, which threaten innovation. The Government’s support in trying to unblock the regulatory approvals system for GM crops in Europe would signal a genuine desire to support the commercialisation of innovation, though the political challenge in this area is in no way underestimated. This is particularly crucial in the light of the recognition in the strategy that the UK is at risk of being outcompeted by other developed countries and the BRIICS, many of which have embraced the potential of this technology. 9.3 The strategy refers to new “Catapult Centres”. New investment in innovation is always welcome but this must not be at the expense of existing networks and centres of excellence which form crucial hubs for public/ private sector partnership inR&D.This relates particularly to the agricultural research institutes, which have been subject to cuts, closures and amalgamations over a long period but which remain vital centres of R & D expertise at the interface between academia and commerce. 9.4 There are many references to initiatives aimed at SMEs throughout the strategy. In the commercial plant breeding sector there are very few SMEs in the UK or the EU. The majority of companies are UK arms of larger European or multinational companies. They will not benefit from the measures designed specifically for SMEs but they are subject to the funding constraints of the sector as a whole that are outlined above. Companies that fall outside the SME definition also need support and it is from them that most breeding innovation will come. 9.5 The Government’s commitment to support research and innovation in business and remove barriers to innovation is welcome. No doubt Government will be engaging with industry as it implements this strategy. The commercial plant breeding sector is generally conspicuous by its absence from high level discussions with policy makers in Government in contrast with academia, yet its products are potentially major contributors to addressing the grand challenges of food security and climate change and are of major economic significance. BSPB urges that there be dialogue with the commercial plant breeders.

10. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? Yes. With food security and sustainability high on the agenda, agriculture must attract substantial inward investment to sustain innovation.The provision of a clear long term political strategy will encourage new investors, including some in the ﬁelds of renewables and emerging bioindustries but this needs to be by direct funding into commercial breeding companies; the timescales for venture capital are too long.

11. What other types of investment or support should the Government develop? 11.1 For plant breeders to innovate by commercialising the output from the UK’s high class plant science research base, the industry needs to be allowed to flourish in an enabling regulatory framework in which there is appropriate reward for innovation supported with effective powers of IP enforcement. The sector needs a clear understanding from public sector research funders of commercial breeding as the unique delivery route for plant science research and of the financial and temporal limitations on it, together with a recognition of what there is to gain economically, environmentally and socially from building a solid and durable passage across the valley of death. 11.2 Some specific steps that could be taken by now Government that could have a tangible benefit for innovation in plant breeding include: — Strong support within the current European simplification reviews of the Seeds Marketing Directives and Community Plant Variety Rights Regulation for reforms aligned with those that have been proposed by the breeding and seeds industry, particularly those relating to farm saved seed and enforcement of IP rights, which would make for a more enabling regulatory environment in which innovation could thrive. — Help to reduce the financial burden on the breeding sector through an imaginative and flexible approach to the delivery of the statutory services for plant variety registration, seed certification and plant health, transferring competence to the industry to deliver these services at lower cost, with no loss of quality at the earliest possible opportunity. This refers to the ongoing review by Fera of the fees it charges for these services, which are unavoidable for the breeding industry and which are set to increase by up to 400% over the next three years, directly taking £1 million out of the industry’s ability to fund R & D unless Government is prepared to consider this alternative. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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— Targeted funding initiatives for public sector funders; involving the identification of an industry need (eg wheat productivity increase of x% by 2030) and a long term, directed allocation of R & D funding to private/public collaborations designed to achieve these targets—a totally different model of funding to the more usual response mode funding through a range of disparate, broadly defined initiatives. 11.3 Not so immediate and politically difficult, but the Government should consider meeting head on the regulatory obstacles posed by GM technology and emerging breeding technologies to start to reverse the current position of the UK and Europe as an innovation backwater as far as these new technologies and the R & D investment that they can bring is concerned. The sector would like to see the Government fight to ensure that novel breeding technologies are not allowed to become regulated as GMOs, which if it happens could accelerate the exodus ofR&Dprogrammes and associated loss of investment by breeding companies from the UK and Europe. February 2012

Written evidence submitted by The Royal Society of Edinburgh Summary — A broad, systemic review of commercialisation that addresses the fundamental question of how to create a culture of creativity and entrepreneurship in the UK is needed. — Considering commercialisation in the context of the full sequence, from fundamental research to post-commercialisation, highlights that there is no single silver bullet. A package of incentives and actions will need to be combined with a change of attitudes across academia and the private and public sectors in order to achieve a step change. — Government has a role to play in addressing a number of key challenges. Firstly, to improve the interface between universities and industry, government should stimulate industry “pull” on the research base (particularly from SMEs), and encourage universities to make such engagement easier, eg through better visibility of their research activity. — Where there are gaps in funding, and in sectors that are capital intensive or highly regulated, the government should focus on de-risking investment, and so making it more attractive. This may take the form of financial support, such as co-investment, but can also call for long-term policy stability, smarter regulation, or further development of incentives such as tax relief. — The RSE welcomes the commitments of HM Government, set out in recent growth strategies, to support commercialisation through initiatives such as the Smart scheme, the Innovation Vouchers scheme, and through improved public procurement. — However, moves towards increasing open access to publicly-funded research must be carefully handled: while stimulating innovation by enabling interested parties to use such research, any company interested in making commercial profit will not carry out its activities in the UK if forced to open its work to competitors. — Ultimately, commercialisation will only be successful, and investors will only take risks, if the management team involved have the skills and expertise needed to steer the project. Government should work with universities and industry to ensure that graduates are commercially-aware, and equipped with the skills and entrepreneurial spirit that are necessary to a flourishing economy.

Introduction 1. The Royal Society of Edinburgh (RSE), as Scotland’s National Academy, welcomes the opportunity to comment on the Science and Technology Committee’s inquiry into the commercialisation of research. With experience and expertise amongst its Fellowship in both academia and industry, and across the spectrum of research disciplines, the RSE is well-placed to comment on the issues raised.

Culture for commercialisation 2. The question of how to better support the commercialisation of research has been under discussion for years, with each review leading to one or two initiatives of varying degrees of success and depth of impact. The RSE calls for a broader, systemic approach that gets to the root of the challenges to research commercialisation, and that will allow us, in the UK, to create a culture that fosters creativity and entrepreneurship. 3. The issue at hand is not merely how we increase the number and proﬁtability of spin-out companies issuing from British universities. A key role of universities, albeit one that is more difﬁcult to track, is in producing graduates who enter industry with the skills, and the mind-set, needed to identify commercial opportunities and to exploit them. Further, commercialisation is not a stand-alone activity, but rather must be considered in the context of the sequence that begins with fundamental research, carried out in both universities and industry, and continues to post-commercialisation. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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4. Throughout this process there is no single “valley of death” and there exists no one silver bullet that will cut down the barriers to commercialisation. Rather, a package of actions—from investment incentives to smarter regulation—will need to be combined with a change in attitudes across academia, industry, the investment community and the public sector, in order to stimulate and facilitate more effective commercialisation of research to the beneﬁt of the UK economy.

What are the difficulties of funding the commercialisation of research and how can they be overcome? 5. A starting point in addressing the difficulties of commercialising research has to be the relationship between universities and industry. Where there are credible ideas that can be commercialised for potentially good returns, the private sector can bring significant investment to the table. But, in the UK, as elsewhere, the interface between the academic and private sectors can be strained and marked by poor communication. 6. Industry cites a lack of visibility of the research being carried out in universities as a key barrier to investment on their part. While Research Councils and Higher Education Institutions (HEIs) produce much literature on the research being funded, there is little information on the value or implications of this research that can be easily assessed by companies that might invest. The web-based Gateway to Research initiative set out in the Innovation and Research for Growth Strategy23 may help to overcome this barrier, but only if it is designed with the needs of industry in mind. Encouraging academics to disseminate their research activities to industry, particularly the SME sector, would allow interested industrial partners to consider opportunities early and, where appropriate, provide an informed view of market needs. 7. The relationship is further complicated by the differing approaches taken to commercialisation from university to university. While accepting that a “one stop shop” approach is not practical, moves towards pooling initiatives (such as the Scottish Universities Physics Alliance, or the Scottish Informatics and Computer Science Alliance) have been useful in providing central points of contact and improving communication with industry. Further, in November 2011, Scotland’s universities signed up to a single set of contracts to aid the commercialisation of research, simplifying the process through which businesses, particularly small businesses, can partner with HEIs.24 8. These initiatives are a welcome indication that commercialisation is becoming embedded in Scottish universities where, for many years, prevailing cultures and attitudes meant that, for those attempting to commercialise research, the process was an uphill struggle. Long-standing regulations and the parameters on which universities’ performance is measured have often placed commercialisation on the back burner. The inclusion of impact as an element of the Research Excellence Framework is a welcome step in bringing commercialisation to the fore. The difficulty for the REF is in finding a balance between teaching, the development of well-educated, commercially-aware graduates, fundamental research and impact. Where impact drives commercialisation, without impeding the quality of teaching or levels of fundamental research, then an increased allocation of score will encourage a change in academic mindsets. 9. Even as the interface between academia and the private sector improves, we are left with a perennial problem that has characterised both the Scottish and UK commercialisation landscapes: the lack of pull on the research base from industry. In Scotland there is a lack of large industry, out-with Aberdeen, that has capacity to take risks and invest large sums in commercialising research. This challenge can be somewhat overcome by the increasingly global nature of markets—Wolfson Microelectronics for example, is an Edinburgh-based company that is successfully integrated into the global audio-technology market—but proximity and visibility continue to be important factors. 10. Small and Medium Sized Enterprises (SMEs) account for over 99% of businesses in Scotland.25 While some of these will be on the cutting edge of new product development, the vast majority do not have the resources or skills capacity to actively seek commercialisation opportunities that could boost profitability over time, stimulating economic growth. An added difficulty for the SME sector is the loss of people with R&D experience coming out of large industry; and the lack of recent graduates with industry knowledge. There is a role for government to assist SMEs to engage in research commercialisation. There have been initiatives in Scotland where the Scottish Government, Scottish Enterprise and the EU (eg the STRIDE programme) have supported the redeployment of skilled engineers and scientists from large businesses which are downsizing to the SME sector, for example in times of major redundancies at Rolls Royce Aerospace, BAE Jetstream and Volvo Trucks. 11. Angel investors and venture capitalists of course have an important role to play in the commercialisation process. In Scotland the number of angel investors in the market has grown, in part because of the co- investment scheme run by Scottish Enterprise. But venture capital is increasingly limited and there is a trend for venture capitalists to invest at later and later stages of the process, including at the post-commercialisation stage where a company has realised profits and is looking to expand. This reluctance on the part of venture capitalists to take risk, combined with the unwillingness of early stage investors to risk the levels of investment 23 Innovation and Research Strategy for Growth, Department for Business, Innovation and Skills, December 2011, www.bis.gov.uk/assets/biscore/innovation/docs/i/11–1387-innovation-and-research-strategy-for-growth.pdf 24 Media Release, Universities Scotland, 24 November 2011, www.universities-scotland.ac.uk/uploads/SingleContractsUTcomFINAL.pdf 25 Scottish Corporate Sector Statistics 2011, The Scottish Government, www.scotland.gov.uk/Publications/2011/10/SCSS11 cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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that are now needed to carry a company to the venture capital stage, highlight the lack of ambition and aversion to risk that dog research commercialisation in the UK.

Are there specific science and engineering sectors where it is particularly difficult to commercialise research? 12. Challenges for the funding of research commercialisation arise particularly in sectors that are capital intensive and sectors that are highly regulated. In the former, the large levels of investment needed, for example in the development of new energy technologies, inherently carry greater risk for investors. In the latter, the difficulties of complying with regulation, for example in the life sciences sector, combined with the perils of litigation, increase the risks to successful commercialisation. 13. In both of these instances, government can help to stimulate investment, not simply by providing financial support but by ensuring that policy and regulation reinforce the commercialisation agenda. Stable policy that sends clear messages on the long-term commitments of government, for example renewable energy priorities, is key to reducing risk for investors looking at long payback periods. Regulation, for example covering the development of new drugs, must necessarily be robust, but smarter regulation, and smarter regulators, could do more to minimise the risks for investors in certain sectors. New initiatives announced in the UK Life Sciences Strategy,26 including the creation of the Biomedical Catalyst Fund and a commitment to speed up the adoption of new drugs and technologies by the NHS, are welcome. But without a major culture change, with decision-makers taking a longer-term view, better risk management and more timely feedback, in conjunction with streamlined regulation, there is unlikely to be a step-change in the levels of commercialisation.

What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? 14. From university to university there are any number of examples of research undertaken in the UK that has been commercialised abroad. Plastic Logic, a successful spin-out company from Cambridge, is now headquartered in the USA and principally owned by Russian investors. Many green energy technologies are being bought up by China, and, in informatics, much research is transferred to the US at an early stage. 15. There are a number of reasons why research carried out within UK universities and early stage spin-out companies is transferred abroad for commercialisation. The lack of local markets and industry bases is one aspect of this. While, as previously noted, markets are now highly globalised and manufacturing often takes places in countries such as China and India, physical proximity to customers (whether industry or end-users) and investors can be crucial to raising visibility and building reputation. Companies such as Cisco will always look to Silicon Valley for new innovations and developments. 16. The unwillingness of angel investors to carry start-up companies through to venture capital stage can force the sale of early-stage UK spin-outs, or their research, to buyers abroad. Government support that contributes to de-risking investment, for example by reshaping the Enterprise Investment Scheme to make subsequent venture capital investment more acceptable to early stage EIS investors, together with better risk assessment and management on the part of investors, is urgently needed. 17. As the UK moves towards increased open access to publicly-funded data and research, as set out in the Innovation and Research for Growth Strategy, it should be expected that conﬂicts with the commercialisation agenda will occur. While recognising the opportunities that open access will bring, allowing a wider range of interested parties to use the research in potentially innovative ways, there are already sectors in which this is limiting commercialisation activity. 18. The obligation in the UK for every human embryonic stem cell line that is developed using public funds to be placed in the Stem Cell Bank and made open source, discourages any company that wants to commercialise stem cell research from carrying out its activities in the UK. The Medical Research Council has been lobbied extensively on this, but no solution has been found.

What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 19. In Scotland, a number of initiatives, principally run by Scottish Enterprise, have contributed to improved commercialisation of research. The Scottish Co-investment Fund, a £72 million equity investment fund, has been effective in creating partnerships with private sector business angels and, to a lesser extent, venture capitalists. At UK level, the Carbon Trust programme of co-investment in low-carbon technologies has played a key role in leveraging private equity in the sector. 20. SMART:SCOTLAND, providing grant assistance for technical and commercial feasibility studies and R&D projects that represent technological advances in their ﬁelds, is a highly-rated source of funds for potentially high-growth SMEs in Scotland. The relaunch of the Smart scheme at UK level under the Innovation and Research for Growth Strategy is a positive step. 26 Strategy for UK Life Sciences, Department for Business, Innovation and Skills, December 2011, www.bis.gov.uk/assets/biscore/innovation/docs/s/11–1429-strategy-for-uk-life-sciences cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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21. ITI Scotland, and its subsidiaries focused on energy, life sciences and tech media, that operated in Scotland from 2003 until its integration into Scottish Enterprise in 2009, did make a contribution to the commercialisation of research in Scotland. While not without controversy, for example, in regard to its outright ownership of IP, the organisation invested £134 million across 25 research programmes.27 22. However, public initiatives to date have often focused on technology push rather than industry pull, and have contributed more to accelerating the speed with which companies arrive at one side of the commercialisation valley, without taking them across. Initiatives now coming out of the Technology Strategy Board and those focusing on industry pull, for example the R&D Tax Credit scheme, are particularly welcome. 23. The Small Business Research Initiative (SBRI) scheme championed by the Technology Strategy Board, and based on the SBIR programme which has long been in place in the USA, is a key element of public sector pull on the research base. Engaging with companies to find innovative solutions to identified public sector needs, allows for substantial expenditure across government departments on the commercialisation of research, while allowing IP to rest with the company. The American scheme stands as a highly successful exemplar that benefits both government and small businesses; translating the scheme to the UK has had its difficulties, due in the past to procurement rules, lack of budgets and lack of understanding across departments, but under the management of the TSB the programme has become more effective.

What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 24. As outlined above, the proposed greater use of public procurement, through increased investment in the SBRI and the setting up of Procurement Centres of Expertise, could be a strong lever in improving the commercialisation landscape in the UK. However, for this to be truly successful, a forward-looking, innovative culture must prevail across government departments, together with an understanding of the challenges and opportunities of commercialisation. The high rotation of civil servants between posts, and subsequent backsliding in deep understanding of the complex issues that hinder and support commercialisation, can only be overcome if this knowledge is embedded throughout the organisation. 25. The relaunch of the Smart scheme reinstates a well-respected brand and programme of funding for high- tech SMEs with the most growth potential in the UK. The SMART:SCOTLAND scheme has certainly had some success in recent years and we would like to see this replicated throughout the UK. At the other end of the SME spectrum, we look forward to seeing the results of the Innovation Voucher scheme pilot that will target SMEs which have not previously engaged with the research base. 26. The ownership of Intellectual Property is an outstanding issue that requires to be addressed. While noting the commitment of HM Government to accept the recommendations in the review of intellectual property by Professor Ian Hargreaves, there is more to be done around the transfer of IP relating to research developed in universities to the company that will take it forward to commercialisation. 27. IP created using public funds administered through the Research Councils is vested in the universities, but each university has its own policy for the handling of IP thereafter. For companies interested in commercialising research, negotiations with the university on IP ownership or licensing can be complex. The situation becomes even more complicated where more than one university, or another body, such as the NHS, is involved. 28. There is a common perception among industry and investors that universities can be unrealistic in negotiating terms on the transfer of IP, often expecting large percentage returns even where IP is not assigned but exclusive licence granted. In a company’s early years, when cash flow is often a make-or-break issue, heavy repayments to the university in the form of licence payments or wage costs for academics involved, can be a significant factor in the success or failure of commercialisation. A long-term view, anticipating returns on future profits, would help in the agreement of deals that will be beneficial to the universities, the companies, and any other investors involved. There has been positive progress with initiatives such as the Easy Access IP approach developed by the University of Glasgow and partners that opens up much of the unallocated IP created within the university to industry without cost.28 29. However, we would again re-emphasise that there is no single silver bullet that will solve the challenges of commercialisation; a fundamental review of the issues involved and broad understanding of how initiatives sit together in addressing barriers is needed.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and, if so, how can this be achieved? 30. Private equity investment that enables commercialisation will become increasingly important as the levels of funding government is able to invest become squeezed. The most important role of government in attracting private investment, including from angel groups and venture capitalists, is in reducing the risks that investors must take and in making such investments attractive compared to alternative options. 27 www.scotsman.com/business/macpherson_out_as_scottish_enterprise_takes_charge_of_iti_1_754035 28 www.easyaccessip.org.uk/ cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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31. Some of the options through which government can minimise risks for investors have been mentioned throughout this response. Providing clear long-term signals to markets, innovative procurement policy, smarter regulation and co-investment are examples of these.

32. The Enterprise Investment Scheme, and the new Seed Enterprise Investment Scheme, offering tax relief for private equity investors in start-up companies, are two useful initiatives. However, at present, under the EIS, early stage investors can purchase only ordinary shares, placing them on unequal footing with later venture capital investors who will take only preference shares. Allowing some ﬂexibility for early stage investors in these schemes to convert their holdings to shares with preferential rights after a certain period, would provide greater parity and make the schemes more attractive.

33. Venture Capital Trusts which can take a longer-term view on returns, and take more risks, could potentially be vehicles through which larger levels of investment—sources of which are difﬁcult to ﬁnd in the UK—can be harnessed. VC Trusts are currently often risk averse, but tax breaks for investing in such Trusts could be given in return for a requirement to take more risk.

34. Venture capital companies themselves do have a role to play in improving their ability to “pick winners”. Investors will be more likely to be attracted by a 20% success rate than a 10% success rate. Employing the right staff who can provide high quality analysis and implement better screening processes will contribute to an improving success rate.

What other types of investment or support should the Government develop?

35. The successful commercialisation of research will always depend in large part on the skill of the management team involved. While it is usually possible to assess technical risk, ie whether research can successfully be scaled up; and market risk, ie the level of demand; the unknown factor will often be the skills, experience and attitudes of the management team. Most investors will not consider funding projects in which there is any doubt over the credibility of the management team.

36. There is a great degree of variability across UK universities in the extent to which students are equipped with business skills and industry exposure. While accepting that some students will intend to pursue a career in academia, the majority will not, and therefore should be given the opportunity to develop the skills that employers need. Fostering an understanding of industry needs and an entrepreneurial spirit will encourage British graduates to identify and exploit commercial opportunities.

37. Support from government at this stage of student development would have a follow through impact on the commercialisation of research. It is countries that produce graduates with creative, ambitious mindsets that have strong track records of commercialisation, demonstrating the need for an entrepreneurial culture that permeates across academia, industry and the public sector. A number of initiatives that have brought British and American students together have provided stark examples of the attitudes that typically prevail in each country; but, equally, such initiatives have provided important learning opportunities for UK participants.

38. There are existing schemes that act to strengthen links between British and international researchers, for example the Saltire Foundation, which does not call on public funds, Knowledge Transfer Partnerships and the Roberts Enterprise Scheme. The RSE Enterprise Fellowship Scheme29 has been highly successful over the past 14 years, resulting in more than 60 prosperous companies that have attracted around £100 million of investment. There is a case for this to be adopted much more widely across the UK. But in almost all of these initiatives there are questions over the levels of future funding. Government should carefully consider the beneﬁts of such links and how it might support them in the future.

39. At the same time, government should consider how it can support an increase in the level of industry exposure students can access during degree and post-graduate courses. This could be through co-funded studentships that include mandatory time spent with industry partners; or payments towards wages of PhD and Master students hired by industry, incentivising HEIs and the private sector to work together.

Conclusion

40. The RSE welcomes continued commitment to improving the commercialisation of research in the UK. To overcome the numerous “valleys of death” that occur throughout the process, a range of incentives (ﬁnancial, legislative, regulatory) will be required from government. But the much-needed step change in the UK commercialisation environment will only come when attitudes across the academic, private and public sectors fully embrace a creative and entrepreneurial culture, and when our graduates are equipped with the skills, conﬁdence, and ambition that are needed to become successful innovators. 29 www.royalsoced.org.uk/564_EnterpriseInnovationFunding.html cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Additional Information Advice papers are produced on behalf of RSE Council by an appropriately diverse working group in whose expertise and judgement the Council has conﬁdence. This Advice Paper has been signed off by the Chair of the group and by the General Secretary. February 2012

Joint written evidence submitted by the UK Innovation Research Centre (UK~IRC) and the Centre for Business Research (CBR) 1. Introduction 1.1 This submission relates to the commercialisation of breakthrough technologies from science base to viable commercial applications. Breakthrough technologies emerge from novel and discontinuous innovations that result in significant and irreversible changes. These innovations are based on new, under-or un-exploited physical, chemical and biological phenomena, that allow order of magnitude improvements in the performance of existing products and/or the creation of entirely new ones. These novel innovations may entail the development of “new technology platforms” with applications across a range of products and markets. Many of the resultant applications are not envisaged at the time of the initial innovation. This class of commercialisation breakthrough is frequently asserted to suffer from a “valley of death” problem which requires public sector subsidisation of private sector suppliers of finance and, in particular, of venture capital finance to fund early stage high technology business development. In the UK small and medium sized businesses in general are, in normal times, able to get most of the finance they need (Cosh et al 2009) whilst formal venture capital (as opposed to informal angel Finance) has played a negligible role in early stage financing in either the UK or the USA. In the USA, moreover, angel finance has been embedded in a system in which direct public sector funding and financing by large corporations together account for around twice as much finance as informal venture capital funding (Hughes (2007) Connell 2007). The evidence shows that financing the early stage commercialisation of technology breakthroughs from the science base involves sustained public sector support, multiple sources of finance with long time lines and many feedback loops. A better analogy for this process is competitive selection in a Darwinian sea rather than passage across a single valley of death (Auerswald and Branscomb (2003)). This process and the role for policy support is best understood in the context of specific examples of commercialisation processes from the science base. This submission therefore seeks to address the questions raised in the “Bridging the Valley of Death” inquiry by drawing on evidence relating to the commercialisation process in of a sample of major breakthrough technologies in the UK. 1.2 The submission draws on evidence from seven historical case studies of breakthrough technology development carried out as part of an EPRSC funded research project (Sharpe et al (2010)). The case study technologies are Liquid Crystal Displays (LCD), Light Emitting Diodes (LEDs), Optical Fibres, Photovoltaics, Inkjet Printing, Giant Magnetoresistance (GMR) and Microelectronic Mechanical Systems (MEMS).

2. How do commercialisation patterns emerge for breakthrough technologies? 2.1 The commercialisation patterns of breakthrough technologies are characterised by progress that is cumulative and slow up to a certain point of discovery or breakthrough when dramatic and quick evolutionary change takes place and sees the emergence of a new technology with new potential applications, markets and industrial direction. (Adner and Levinthal (2002)) This process involves long time lines; breakthrough technologies are comparatively rare events and involve the interplay of multiple actors in the public and private sectors. There is no single “silver bullet” route.

3. What are the key factors in these commercialisation patterns? 3.1 The case studies allow the identiﬁcation of two transition periods in the commercialisation of science- based technology; the transition from science-base to pre-commercial environment, and the transition from pre- commercial to commercial environment. Factors that drive technology from the science base to the pre- commercial environment include interdisciplinary interaction, time (often decades), a background of “blue skies” or curiosity-driven research activity that is sheltered from the business cycle, technology champions that spread the word of the potential applications and luck. 3.2 Key factors from the case studies associated with transition from the pre-commercial environment into the commercial environment include the development of niche applications for/and existence of non-price sensitive customers. These build the reputation of new technology and non-price sensitive customers and allow engineering/manufacturing techniques to be developed where unit cost is not the primary consideration. Another key factor in transferring from the pre-commercial environment is corporate strategy. Firms (mainly large) make numerous strategic decisions to resource new technologies in the pre-commercial phase. These cover market entry; creating internal capability in technology; cultivating external links; cannibalising existing products with new technology; vehicle of commercialisation (start-up, spin-out or corporate unit); and mechanisms for funding technology development R&D contracts, and R&D programs (usually cooperative), internal revenue or external sources such as “money clubs” funding arrangements that include subscriptions or cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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annual payments made by ﬁrms (usually potential customers and suppliers) to other ﬁrm/s to fund technology development and risk capital.

4 How is Breakthrough Technology Funded? 4.1 The case studies reveal a variety of funding strategies for the development of pre-commercial technology. There is no simple “Valley of Death” story based on the absence of venture capital. Venture capital is absent at this stage, because it is not designed to meet the needs of that stage. The funding strategies used include government R&D programs and contracts, existing corporate revenue, and gathering external funding support from customers. Venture capital funding plays a small role, and we comment further on why this is so in Section 9 below.

5. What is the role of Government R&D contracts? 5.1 Government R&D contracts were an important source of pre-commercial technology development in all of the cases analyzed. In the LCD case R&D contracts were for military applications in display devices (mainly for aircraft cockpit displays). In ﬁbre optics development government contracts were frequent as a result of the telecommunications function still being under government control and/or government monopolies in most countries. There were, however, other R&D contracts for the development of solutions for military use (such as ship communication systems). Photovoltaics early development was largely funded by the space program in the US and the need for remote power applications in other countries (remote telecommunications in Australia, and coastal lighthouses in Japan). In the more recent case of GMR development government (US military) contracts supported the development of magnetic sensors for land mine detectors. In each of the government contracts the activities supported were pre-commercial technology development generally, and for development of speciﬁc niche, high cost, low volume applications primarily for military use. The use of these contracts varies greatly between countries. The US has the most prevalent activity in these types of contracts.

6. What is the role of Government R&D and related programs? 6.1 Many governments outside the UK support technology through specific R&D programs aimed at pre- commercial support in technology and market development around a group of applications. These provide R& D support and subsidies for specific technological areas; access to specialized equipment; forums for the establishment of standards; direct financial support for establishing new industries; public procurement by military and health departments especially of R&D services; acting as deep-pocketed first customers and procuring first quantities of technologies.

7. What is the role of Corporate funding? 7.1 Corporate funding from internal revenues is alongside the public sector the other signiﬁcant funding source for pre-commercial support. Much of the breakthrough technology analyzed in these case studies emerged from large corporates. Ensuring a critical balance of engagement between large and small ﬁrms in the commercialisation process is a central policy issue. The case studies do show that corporate venture capital can be important, though not simply as a means of funding start-up businesses. The growth of open innovation policies amongst large corporates is associated with a growth in corporate venturing as a means of knowledge acquisition, with mixed consequences for high technology start-ups.30

8. What is the role of Customer and related funding mechanisms? 8.1 In a number of cases studies, novel funding mechanisms, such as “money clubs” emerged. Corning used a group of international cable providers (potential customers) to support their earlier research on single mode optical fibres. Elmjet, (a spin out firm from Cambridge Consultants) developing binary deflection continuous inkjet technology invited potential customers in different market segments to join a user council with an annual membership fee of £50,000. Membership gave access to information on technology development and priority ordering for emergent product. These activities reinforce the need in policy terms to link users to the commercialisation process.

9. What is the role of Venture Capital? 9.1 The technologies investigated in the case studies revealed few examples of the use of venture capital. This should not be a surprising result given the breakthrough nature of the technologies examined. Venture capital is a source of funding for a limited number of firms with very specific characteristics in terms of technology development and market opportunity. Firms that seek equity investments are typically small firms rich in intangible assets such as technology and specialist knowledge but lacking in other forms of assets that provide the means to access other forms of external finance such as debt finance. Venture capital funds are typically looking to invest in firms that have a great opportunity for extraordinary profits and the ability to make a return on investment (equity share returned back to the fund in form of cash) within 10 years. As a result venture capital funds would look to invest only in technology applications that were in the commercial environment. 30 See for example Mina et al (2012) and Cosh & Zhang (2011). cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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9.2 In examining the long periods of time that typical breakthrough technologies spend in the pre-commercial environment the limited activity of venture capital in these breakthrough technologies is therefore not surprising. This is not to say that venture capital is unimportant in commercializing technology. Successive waves of innovation and application development of breakthrough technologies once they are established in the commercial environment may be supported by venture capital financing. Issues with the availability of venture capital in this environment for new technology based firms are well known as are activities by governments aimed at increasing the supply of venture capital finance.31 Government activities aimed at increasing the supply of venture capital finance to new technology based firms can only play a specific and limited role in the commercialisation of science-based breakthrough technology. This is because venture financing is a suitable means of funding technology development for a specific set of firms operating towards the end of the overall commercialisation cycle.

10. How does the UK perform in the commercialisation of breakthrough technologies? 10.1 Assessing the performance of the UK in science-based commercialisation is difficult even in the context of the specific technologies examined in the case studies. Breakthrough technology development is a global phenomenon involving actors from many countries. The case studies highlight numerous examples of UK participation; in particular UK organizations played a major role in the commercialisation of liquid crystal displays, optical fibres, light emitting diodes (particularly organic light emitting diodes) and Continuous Inkjet printing (CIJ). The UK continues to show technology leadership in CIJ and emerging elements of the LCD industry (for example Zenithal Bi-stable LCDs) and the LED industry (continuing in organic LEDs). 10.2 Achievement in these areas however needs to be set against the initial established criteria of success. Taking the example of the LCD industry, it is true that the UK government (through military research, grants and contracts) invested in the development of liquid crystal materials in the 1960s and 1970s. This led to a dominant position in the global supply of liquid crystal materials and the creation of key intellectual property relating to twisted and super twisted nematic structures. However, the UK’s (through British Drug House (BDH)) global position in materials was overtaken by another European counterpart, and the eventual parent firm of BDH, Merck, still holds this position today. 10.3 It could be argued that the LCD industry was a missed opportunity for the UK, but the UK industry was primarily focused on military customers; highly specialized applications, low production quantities and high per unit costs. The UK LCD industry was never in a competitive position to enter the consumer display/ electronics market. Success in the consumer market was never the aim of the UK research programs, rather superior military applications, which were delivered. 10.4 The ability of public policy to support long standing technology leadership in a breakthrough technology field is in need of further research. The cases show numerous examples of policy assisting in the creation of technology leadership, but the leadership is not sustained for a period long enough to also capture adequate value from the initial leadership. 10.5 The role of wider government policy and regulation on technological leadership is also shown in the case of optical fibres. UK organizations were at the forefront of the majority of technological innovations that led to the development of optical fibre communications. The 2009 Nobel Prize for physics to Charles Kao for his work on optical fibres in the 1960s at Standard Telecommunications Labs and David Payne of Southampton University’s Millennium Prize in 2008 for erbium-doped fibre amplifiers, attests to this. 10.6 The British Post Office, which in the 1960s had the responsibility for communications services in the UK, largely initiated and supported the scientific and technical advances made in optical fibres in the UK. Their role was critical in accelerating development by providing seed funding for research programs, bringing together the science and advanced techniques of glass manufacturing and telecommunications research, and creating industrial panels to assess and test the resulting equipment. 10.7 The first fibre optic communications network was established at Dorset in 1975, less than a decade after Kao and Hockman presented their radical theoretical thoughts on the potential of fibre optics as a communications medium. Telecommunications deregulation worldwide, and particularly the restructuring of the British Post Office in the late 1970s and then privatization of their telecommunications function in 1982 dictated subsequent developments, highlighting the effect of the macroeconomic, social and political environment on the development of technology. 10.8 Ownership structures and changes also feature in the CIJ case. The UK maintains a dominant global position in continuous inkjet technology, through a cluster of firms located in the Cambridge area. These firms can be linked to the technology consultancy Cambridge Consultants (CCL). CCL conducted research and development activity (sponsored by ICI) in the late 1970s and developed technological leadership in the CIJ field. This was exploited through a number of spinouts over the next two decades. 10.9 The inkjet printing case study provides the examples of the use of equity funding and associated ownership changes including acquisition activity by a major Japanese based conglomerate of three UK based CIJ firms. These altered the development and commercialisation trajectory by accelerating transition into the commercial environment by providing resources (financial, marketing, human) and pathways to market (access 31 See for example Sharpe et al (2009) and Mina & Lahr (2011). cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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to supply chain). Change of ownership however also alters the appropriation of value across national boundaries so that adequate benefits may not accrue to those who supported the technology previously. 10.10 National programs of research in breakthrough technologies has a strong influence on the eventual commercial outcomes of the research; in the LCD case the goal of UK research programs was not consumer electronics production (as it was in South Korea and Taiwan) but (the much narrower) goal of superior and specialized military applications. This shaped the eventual commercial outcomes. In the case of LCD technology, the goal was not consumer applications therefore resources were not directed into creating links with electronics firms or the production and manufacturer of materials beyond the LC materials.

11. Some policy implications 11.1 The case studies reveal the signiﬁcance of the creation of multi-disciplinary teams working in close proximity which is more effective than individuals working in isolation in the transition process. This should be recognised in the delivery of public support. Innovation policy should include the active creation and support of this type of environment. This should include investment in critical mass organisations building on the recently introduced TIC or Catapult Model.32 11.2 Public sector procurement is an essential component of the pre-commercial environment. The UK should continue to support its core investments in the science base with the development of the SBIR model. The Government should continue to support the Technology Strategy Board to expand the current efforts in this area. Public procurement policy should support innovation policy and wherever possible provide ﬁrst use demand for innovative products. 11.3 Innovation policy should be part of a wider strategic industrial policy. This should attempt to ensure that policies aimed at supporting the development and commercialisation of new technologies are reinforced by other policies (eg taxation, energy pricing), standards and regulations and are based on a strategic assessment of the scale and form of support required.

References Adner, R and D A Levinthal (2002) “The Emergence of Emerging Technologies.” California Management Review 45(Fall): 50–66.

Auerswald, P and L M Branscomb, (2003) “Valleys of Death and Darwinian Seas: Financing the Invention to Innovation Transition in the United States,” Journal of Technology Transfer, 28, 227–239.

Connell, D (2006) “Secrets” of the Worlds largest seed capital fund: How the United States Government uses its SBIT programme and procurement budgets to support small technology ﬁrms. Centre for Business Research, University of Cambridge, UK.

Cosh, A D, D Cumming and A Hughes (2009) “Outside Entrepreneurial Capital” (2009). The Economic Journal, 119, 540, 1494–1533.

Cosh, A., A. Bullock, A. Hughes and I. Milner (2009), SME Finance and Innovation in the Current Economic Crisis Centre for Business Research, University of Cambridge.

Cosh, A and Zhang, J (2011), Open Innovation Choices—What is British Enterprise doing?, Centre for Business Research, University of Cambridge.

Hughes, A (2008), “Innovation policy as cargo cult: Myth and reality in knowledge-led productivity growth”, in Bessant, J and Venables, T (eds), Creating Wealth from Knowledge. Meeting the innovation challenge, Edward Elgar, Cheltenham.

Mina, A, D Connell and A Hughes (2009) “Models of Technology Development in Intermediate Research Organisations”, CBR Working Paper 396, Centre for Business Research, University of Cambridge. Funded under EPSRC grant EP/E0236141/1 CIKC in Advanced Manufacturing Technologies for Photonics and Electronics.

Mina, A and Lahr, H (2011), Venture capital in Europe, EC-FP7 FINNOV Discussion Paper 3.2.

Mina, A, Probert, J & J S Metcalfe (2012), Business Experimentation through Corporate Venture Capital, EC- FP7 FINNOV Discussion Paper 3.4.

Sharpe, S, A Cosh and D Connell, (2009) Funding Breakthrough Technology, Cambridge Integrated Knowledge Centre for Photonics and Electronics (CIKC) and Centre for Business Research (CBR), University of Cambridge. Funded under EPSRC grant EP/E0236141/1 CIKC in Advanced Manufacturing Technologies for Photonics and Electronics. 32 Mina et al 2009. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Sharpe, S, A Cosh, D Connell and H Parnell (2009) The Role of Micro Funds in the Financing of New Technology Firms. London, NESTA (National Endowment for Science, Technology and the Arts. February 2012

Written evidence submitted by the Isis Innovation Ltd Introduction Isis Innovation Ltd is the technology transfer company of the University of Oxford. Isis was established by Oxford University in 1988 as its wholly owned technology transfer company. It is a growing and profitable business, contributing impressively to sustainable economic growth in the UK. Isis is responsible for these activities: Technology Transfer for Oxford Isis helps Oxford University researchers to commercialise intellectual property arising from their research: patenting; copyright; licensing; spin-out companies; research reagents and patient reported outcome measures. Isis manages over 1,600 patents/applications, has established 65 spin-out companies since 2000 raising a total of £330 million, has concluded 650 technology licensing deals, and 900 academic consulting agreements. Isis Angels Network IAN introduces private investors and seed/venture capitalists interested in investing in spin-out companies to investment opportunities. IAN was established in 1999. Oxford University Challenge Seed Fund Isis manages the Oxford UCSF to provide financial investment for accelerating the transfer of Oxford technologies to market. The £4 million fund was established in 1999, has made 155 awards totalling £6 million. Oxford Invention Fund Isis launched the Oxford Invention Fund in 2010 with the University’s Development Office as part of Oxford Thinking, a united Campaign for the collegiate University. The OIF has attracted over £1 million to date. Isis Software Incubator Isis launched this programme in 2010 to support Oxford University staff and students develop software business ventures by offering technical and commercial advice. Three new software companies have been formed in the first full year of operation. Oxford University Consulting Isis manages OUC which helps Oxford University researchers to identify and manage consulting opportunities and helps clients access experts from Oxford’s world-class, interdisciplinary research base. Oxford Innovation Society Isis runs the Oxford Innovation Society, a leading forum for open innovation, bringing together industry, investors and the business professions with researchers and inventors from the University. Established in 1990, the OIS has held 66 events and involved over 180 member organisations. Isis Enterprise Isis provides consulting expertise and advice in technology transfer and innovation management to clients across the public and private sectors around the world. Isis Enterprise has worked with clients in 53 countries. International Presence Isis opened its Hong Kong office in 2009. The office provides a platform for Isis Enterprise consulting services in the region, supporting technology providers and technology seekers; and also enables Isis to market Oxford technology opportunities in the region and attract investment partners into Oxford spin-outs. Isis now has staff in Oxford, Madrid, Hong Kong, and Kyoto. We are pleased to provide the following submission in response to your seven questions.

Q1. What are the difﬁculties of funding the commercialisation of research, and how can they be overcome? 1. There is an enormous difference between research outputs and successful new products and services. It takes a long time and substantial investment of energy and resource to create the latter from the former; it involves bringing together people with different objectives, capabilities, and motivations working together over a long period of time. These difﬁculties can be overcome: cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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2. By government: (i) Addressing market failures in a clear and consistent manner; avoiding tinkering with its schemes; avoiding the pr needs of politicians rebranding, redesigning and reinventing schemes; think beyond the electoral cycle. It is a long term process for which we need long term stable schemes. (ii) Continuing to support the Higher Education Innovation Fund which supports the development of capacity within universities to deliver a successful research commercialisation programme. Support should be focussed on activities with clear results, evidenced by intelligent metrics. (iii) Reinstating a speciﬁc stream of funding for Proof-of-Concept/Seed Fund support within universities. The 1999 University Challenge Seed Fund scheme was fantastic; this stream of funding has got lost within HEIF, where the tendency is to use HEIF money to hire people; there needs to be a protected allocation for Proof-of-Concept/Seed Fund support. (iv) Continuing with the EIS and SEIS schemes; simplifying and promoting the EMI scheme. These steps are vital to encouraging and incentivising good people to risk money and time in early stage ventures. (v) There is no need for government to prop up further the UK dysfunctional early-stage venture capital community (see BVCA data). They lobby well and deliver poorly. There is already sufﬁcient government support through VCT, ECF, CGT. What is needed is investment executives with real experience of growing sustainable businesses. (vi) Improving the immigration system to allow talented researchers to remain in the UK for longer. (vii) Supporting business incubators which provide facilities for new and early stage businesses. These can be on a modest scale such as the successful Isis Software Incubator. 3. By businesses thinking about and talking to the market, customers and potential customers earlier; from the outset of their business planning. 4. By shareholders, including investors, taking a longer term view on the returns on their investments; developing the concept of “patient” capital, shareholders willing to grow sustainable businesses, recognising this takes a long time, and sustainable businesses that will maintain a UK base.

Q2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 5. In Healthcare there is an urgent need for the NHS to present itself as a willing customer of innovative products from UK technology companies. The NHS needs to become a first port of call. At present UK healthcare technology companies actively avoid engaging with the NHS because it is such a poor customer (slow decision making, late adoption), turning instead to overseas markets. 6. In the national security and defence sectors there is an urgent need to improve the connectivity between the research base, early stage business and the customer, which is of course Government. 7. Difficulties exist in the healthcare sector and particularly in the drug discovery/development sector where lengthy regulatory processes drives the industry outside if the UK set within an environment of an extremely strong medical research base in this country. The European ban on embryonic stem cell patents is another step that is likely to hamper the progress of the healthcare sector. 8. Overall, UK companies need to become open minded to open innovation in order to benefit from new technologies and thrive in the knowledge based economy. The demand-side, pull-side needs to “get out there” and talk to SME’s and the research base.

Q3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 9. In 2010 one third of our technology licence deals were with UK companies; one third with US companies and one third with Europe and ROW. 10. We would naturally have a preference for UK companies as transaction costs should be lower; however, there is such a shortage of innovative companies in the UK that we deal with overseas companies in order to see our early-stage technologies receive the investment required for new products to reach the market. Experts describe this as the low “absorptive capacity” of the UK economy, and refer to the lack of “stickiness” of the UK economy in its ability to retain successful businesses in the UK. 11. Our overseas business partners show an enthusiasm for innovation and understanding of the issues way beyond UK counterparts. Examples here are with healthcare diagnostics and vaccine technologies. 12. The university spin-out companies which we set up start local to Oxford, and the majority remain in the UK. We have established 65 new companies since 2000; of the 52 remaining in business all have a UK presence. However, an increasing number have overseas investors and are developing their future with overseas customers; the risk of them leaving the UK only increases. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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13. The question reveals a mis-placed prejudice. There are beneﬁts to the UK of doing business with overseas companies: maintain and enhance the reputation of UK as a source of world class innovation, at the centre of the global knowledge based economy; ﬂow of royalty income to the UK; induce location of corporate R&D activity in the UK, close to the research base; develop collaborations with overseas companies bringing investment and funding into the UK, strengthening the UK research base and innovation ecosystem. 14. The patent box should have a dramatic effect in attracting business activity to the UK (please hurry up and implement it).

Q4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 15. The 1999 University Challenge Seed Fund scheme was excellent. Isis manages the Oxford UCSF which has made 115 awards totalling over £6m, in excess of the initial £4m fund due to successful exits. The Oxford UCSF has supported the creation of 31 spin-out companies and ﬁve licensing deals. 16. The Higher Education Innovation Fund is successful in supporting research commercialisation infrastructure at the UK’s leading research universities. In Isis, HEIF money supports Oxford University Consulting connecting academic expertise with business needs, and the team which manages the upstream due diligence of University intellectual property. 17. The TSB has received phenomenal amounts of government funding. To date it has deployed only a small proportion of this. Outside of its weighty administrative infrastructure what it does is good, it needs to do more of deploying its resources where they are needed. TSB recently posted an article detailing 50 technology oriented businesses within the Oxfordshire Local Enterprise Partnership (LEP) who have some relationship with the TSB. Of these organisations, 14 are companies spun out of Oxford University by Isis, 14 are consultancy clients for Isis and 4 are members of the Oxford Innovation Society. TSB support for three Oxford University spin-outs—Oxford Photovoltaics, Oxems and Yasa Motors—has been very successful to date. 18. It was a major government blunder to increase CGT from 10% (fully tapered) to 18%. The CGT Entrepreneur’s Relief is not high enough (although recently increased).

Q5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 19. The majority of provisions should have a positive incremental effect, especially those where tax incentives encourage people and companies to invest time and money in research commercialisation. 20. There is a risk that the desire for open access to research data will in some circumstances conﬂict with the desire for research commercialisation. 21. There is a serious risk that continued reference to the “easy access IP” initiative will in fact damage the prospects for research commercialisation in the UK. The naïve approach trivialises the work involved in building strong partnerships between UK industry and the research base.33

Q7. What other types of investment or support should the Government develop? 23. Tax incentives should be introduced which encourage investors and managers to take a longer time horizon for their investments in early stage technology businesses. 24. The R&D Tax Credit should be better/higher for companies that invest R&D budgets in collaborations with universities. 25. Re-establish a funding channel to universities speciﬁcally for proof-of-concept/seed funds. 26. Switch from a focus on “start-up” to “scale-up”. The UK is good at start-ups, including very good at creating new university spin-outs. It is less good at growing small companies into big companies. 27. Switch from supporting ﬁnancial investors to supporting businesses and the people who invest time, energy and money in them over the long term. 28. Consider activities which encourage experienced, successful entrepreneurs and business people from overseas to develop sustainable businesses in the UK. 33 www.isis-innovation.com/news/articles/EasyAccessIP.html cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Declaration of Interests Isis Innovation Ltd is wholly owned by the University of Oxford. Isis Innovation Ltd has beneﬁted from UCSF funding and continues to beneﬁt from HEIF funding. The principal authors of this submission are employees of Isis Innovation, and serve on a number of government advisory panels (eg Research Councils, TSB). February 2012

Written evidence submitted by The University of Birmingham 1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 1.1 The key barrier to the commercialisation of HEI research outputs is the lack of appropriate resources (ie, skilled practitioners and money) at the right time, to prove the market and optimise development and demonstration of the technology for either licensing or investment. 1.2 The problem is exacerbated by the pressure (driven by both internal and external drivers on academics) to publish research papers. This often means that patent filing decisions have to be taken by an HEI’s technology transfer office or other patent budget holder much earlier than would be preferable. This has several adverse effects: opportunities to file patent applications are often missed; where seemingly good ideas are captured the already thin resources of a technology transfer office are spread across a greater number of projects; and inevitably a great number of patent applications are dropped at expensive national phase entry points due to the lack of commercial justification at the time. 1.3 In recent years Research Councils have tried to address this, and schemes such as the Follow-on-Fund, EPSRC Collaboration Fund, and EPSRC Pathways to Impact have been very helpful, but are only accessible to support a small proportion of the portfolio of opportunities. Applications for such schemes are typically strongest when there is already some external commercial interest, and there is a reasonable understanding of the market. Where the market is new or unknown to the HEI any proposal for such funding to a Research Council is unlikely to be successful, yet, as mentioned in 1.5 below, there is a dearth of early stage investors to fill this gap. 1.4 The Technology Strategy Board SMART awards (previously known as Grants for R&D) can be used to carry out proof of concept/feasibility work. However, universities are currently ineligible to apply for this stream of funding, and thus a pressure is potentially put on universities to establish companies at far too early a stage. The University of Birmingham policy is only to set up a new company in circumstances where there is a viable strategy and business plan and a credible team to run the company. Creating a new company before these criteria have been met involves a significant administrative legacy, and has an adverse impact on the culture it is intended to promote. 1.5 Technology Strategy Board SMART awards also require match funding. This is problematic as most so- called early stage (venture capital) investors have moved far away from very early stages and typically look to invest in companies that are at least starting to generate revenues. Those investors left in this space see very high demands on their funds. Whilst schemes like the Seed Enterprise Investment Scheme can encourage investment in earlier stage companies, this does not go far enough. Such investors inherently want to see the revenue potential validated before they would wish to commit funds, particularly in high technology companies (as opposed to services) that will necessarily need a longer lead-time to market. In the past, regional development agencies (RDAs) had schemes which could help, for example in the West Midlands full support could be achieved by matching ERDF money with those provided by the RDA. 1.6 In order to overcome some of these issues, a number of solutions are proposed: 1.6.1 The University of Birmingham has already established an ever-growing network of experienced entrepreneurs who themselves are attractive to investors; such individuals are required by shareholders to lead the development of new spinout companies, with the academic teams in a support role as required. Often, individuals will carry out either pro-bono or heavily discounted work (occasionally with the expectation of future equity) to help develop the commercial proposition around a concept they believe in. Schemes that can reward and celebrate such in-kind efforts (such as prizes and tax incentives) should be considered. 1.6.2 Research Councils should consider creating some form of fund directly allocated to universities that will enable their technology transfer offices to support proof of concept/market development originating from RCUK-funded projects. More schemes should also exist to encourage or enable universities to have some of their academics’ teaching/research time bought out to assist in commercialisation of research (similar to the BBSRC Enterprise Fellowships). The University of Birmingham has had some success with its creation and development of the Medici Programme which supports individual academics to commercialise their research. 1.6.3 Mechanisms such as additional tax breaks or even grants to investor organisations working with universities which encourage investment in proof of concept “projects” before cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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incorporation of a company should be considered. Such early stage investment is very high risk, and the ﬁnancial returns on investment at this stage are likely to be very small (if any). Tax breaks and grant support may well encourage more funds to be set up by those with loyalties close to a university, such as alumni groups and regional angel networks. Offering national prizes to recognise individuals or groups that do decide to take such early stage risks should also be considered. 1.6.4 Encouraging new teams into incubation environments before company incorporation would also be beneﬁcial. Incentives to enable this (perhaps through vouchers that can be redeemed within Research Parks, Science Parks and other incubators) should be considered. 1.6.5 An equivalent of the Technology Strategy Board’s SMART funding should be made available to universities, at least for proof of market and concept work. This will enable universities to further develop the many ideas that originate outside of Research Council funded projects and/or which do not qualify for RCUK follow on fund support.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 2.1 Any area that is likely to require significant investment and long lead times to market is problematic, particularly where there may be significant regulation. Early stage funding of companies focused on discovering and developing new therapeutics for example, is barely possible in the UK at present due to the long lead times and large investment required. Seed/early stage investors do not have deep enough pockets to follow their money, and later stage investors do not have the risk appetite. 2.2 One possible solution is to create investment and expertise around a common theme, reducing costs and risks. The University of Birmingham is doing this with Bioscience Ventures Limited, a joint venture established in 2010 between the University of Birmingham and Abingdon Health Limited. This new company brings together technologies, money, and sector specific expertise from both parties to enhance and maximise the value of intellectual property in the field of in vitro diagnostics. 2.3 Clearly the scalability of such vehicles will be defined by investment, and the speed at which funded opportunities start to provide a return. This might be replicable in other areas, where industries have a standard development cycle and infrastructure eg, ICT and possibly therapeutics. However, the latter would need a much greater level of investment and is unlikely to be feasible without significant government support to encourage traditionally later stage investors, or corporate venture arms, to invest large sums at much earlier and riskier stages. The recent announcement of the Biomedical Catalyst Fund may be an enabler of such vehicles.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 3.1 In summer 2010 Alta Innovations (the University of Birmingham’s technology transfer company) reviewed the location of their licensees and found that c 25–30% of their licences were executed with companies outside the UK. The primary reasons would simply have been that either there were no ready licensees in the UK, or that the most competitive deal was offered by non-UK companies. 3.2 A number of companies originally started up on the basis of UK research have been acquired by non- UK companies. Primarily this is due to insufﬁcient levels of investment available in the UK to grow these companies to a suitable size and in a reasonable timeframe that meets the return expectations of its original investors. It is only natural that companies would look further aﬁeld than the UK to ensure an optimal return to its shareholders through deals with third party collaborators and trade sale partners.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 4.1 There is no doubt that the many regional and national government initiatives over the past decade or so have had a significant impact on both the commercial development of research and in attracting organisations to sponsor further R&D within universities. Within the University of Birmingham, for example: 4.1.1 The University of Birmingham is involved in a number of Technology Strategy Board collaborative R&D projects such as the £90 million SAMULET (Strategic Affordable Manufacturing in the UK through Leading Environmental Technologies) programme which includes collaborators such as Rolls Royce, BAE systems, GKN and a number of supply chain SMEs and focuses on productivity and environmental improvements, including efficient advanced manufacturing processes and lower engine fuel consumption. 4.1.2 The University of Birmingham has a number of Knowledge Transfer Partnerships (KTPs) which enable the transfer of know-how and expertise from the University, whilst providing further valuable graduate training and career development. The research undertaken as part of the project also has a ready commercial outlet in the form of the supporting partner. Examples from The University of Birmingham include: molecular profiling of blood vessels to identify therapeutic targets with Astra Zeneca; the development and testing of road sensors with cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Campbell Scientific; and the development of products to prevent discoloration of prepared vegetables with Drywite Ltd. 4.1.3 The University Challenge Seed Funds, set up in 1999, were an excellent source of funding to further the commercial development of research outputs, and the UK University technology transfer industry has matured significantly since then as a consequence. The University of Birmingham was a founding partner of one such fund, the Mercia Technology Seed Fund. Since its inception, the fund has evolved significantly: it now has £12.8 million under management in two funds (with a third Enterprise Investment Scheme (EIS) fund planned). 4.1.4 The University of Birmingham deployed 20% of its HEIF4 allocation to fund 50 proofs of concept projects and several Enterprise Fellowships (on which commercially-minded academics were released from teaching duties to focus on research commercialisation activities). This led to an improvement in the University’s KPIs for knowledge transfer, including the generation of patents and spinouts. 4.1.5 The Research Councils have also contributed significantly to the commercialisation of research in recent years, and The University of Birmingham has benefitted in a number of ways, for example: 4.1.5.1 The University has received funding from EPSRC for it to enable both Knowledge Transfer Secondments (KTS) and other Pathways to Impact (P2I). Successful examples of this include the secondment of a University employee into a spinout company to help substantiate the market for ultrasonic transducer technology. This has led to significant customer and investor interest in the technology. The University is also assessing the viability of possible new spinout companies using P2I funding, for example in relation to novel antenna technology for upcoming new generations of mobile communications handsets. The P2I funding is being used to engage an experienced entrepreneur (of potential CEO quality) to further test the market and develop a viable business plan. 4.1.5.2 The University has also utilised the Research Councils’ Follow on Fund, eg for the further development and market evaluation of an interferometer that exploits the wave nature of light to offer the most precise and accurate measurement of displacement. 4.1.5.3 The University has received Collaboration Funding from EPSRC to work with a new company to develop novel photo-resists for the semiconductor industry. This collaboration has not only assisted in scaling up the technology but it has enabled the company to lever further third party funding. 4.2 Of particular interest to emerging high tech companies are: 4.2.1 The Small Business Research Initiative has provided both valuable information on the challenges facing government departments and opened up new funding opportunities for early stage companies (see also 5.3). 4.2.2 The Grant for R&D (now SMART award) has for many years been an important contributor to the development of certain high technology opportunities, and has assisted in leveraging further investment. 4.3 However, the SMART award could be significantly improved in a number of ways: 4.3.1 The funding should provide greater flexibility to enable the provision of management support to be properly recognized as an in-kind contribution, and flexibility granted in the use of funds to encourage and reward any under-spend. As previously indicated investors are not attracted to opportunities which are not yet at a concept proven/market validated stage. The spending profile should therefore be modified to enable some upfront payment, with the remaining tranches dependant on the provision of match funding as the project matures. 4.3.2 See also 1.6.5 above and 7.3 below.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 5.1 The R&D tax credits should certainly increase collaboration with universities, and encourage commercialisation of research. However, it must also be recognized that this is a retrospective beneﬁt, and collaboration cannot happen without upfront investment by a company. The Co-investment Fund and Seed Enterprise Investment Scheme could encourage investment into early stage companies. However, these initiatives are unlikely to go far enough, since they will not encourage investment by third parties before proof of concept. One or more new initiatives focused on encouraging pre-incorporation investment in ideas, particularly those originating within universities, would have a much greater impact. 5.2 It is recognized that SMEs and early stage companies in particular have very little money with which to utilise the expertise of universities, though they often seek this support. The Innovation Voucher programme will help this situation signiﬁcantly. The scheme could have even greater impact if it could be used to encourage either experienced entrepreneurs or companies to explore the commercialisation of university-originating ideas. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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In that case, the Innovation Voucher would work the other way, contributing to the cost of the entrepreneur or company. 5.3 The continued investment into SBRI is welcomed (see 4.2.1). It is noted that the US require their government departments to spend a defined % of their budget on supporting small business initiatives. Whilst it is appreciated that there may be constraints in doing this within Europe, any mechanism which encourages UK government departments to explore innovative concepts would be welcome. Procurement centres are also welcomed and should allow opportunity to better understand a market need and an industry. 5.4 Potentially, the new Catapult Centres could provide ready availability of significant expertise and equipment to support the growth and development of new and existing companies commercialising the results of UK research. The key to this is likely to be in how “open access” these facilities will actually be and/or what funding streams will be available to enable such access. There should be mechanisms introduced to encourage the Catapult Centres to work in partnership with universities to pull through and accelerate the commercialisation of research. There is a significant opportunity to broaden universities’ impact on economic growth by enhancing the arrangements for business and researchers to generate market-led innovative offerings through engagement with the Catapult Centres. 5.5 Potentially the Biomedical Catalyst Fund could significantly reinvigorate the UK life sciences industry, by enabling investment at all stages of research and commercial development. We look forward to understanding in more detail how this fund is intended to operate.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 6.1 More private equity investment should be encouraged at the proof of concept stages. See also 1.6.3 and 5.1 above. UK government should also seek to exercise influence over the use of European Funds. For example, we are aware of discussions over COSME which may improve some access to finance, but thought should be given to how it could be used for proof of concept stages. 6.2 There is increasing interest in the crowd-sourcing of support and alternative finance (eg, Crowdcube.com). At present, this seems to be suited to more traditional service companies and community projects. However, it is inevitable that there will be increasing interest in the application of these instruments to high technology companies. The UK should prepare itself for this and start to consider how regulation can encourage such support whilst providing adequate protection for investors and investee companies alike.

7. What other types of investment or support should the Government develop? 7.1 Unlike most other start-up companies which are more typically driven by the originator of the concept, the commercialisation of ideas arising from University research typically requires additional experienced people to provide commercial drive if a spinout company is to be established. Funds and incentives which encourage those experienced commercial individuals (CEOs and COOs) to work with universities and to co-create businesses would be highly valuable. The support of innovative mentoring schemes which properly assesses the capabilities requirements of existing teams, rather than simply just sourcing a mentor, would also be welcome. 7.2 Further incentives (such as tax breaks, which might not otherwise fall under the R&D tax credits) could be used to encourage larger companies to trial and adopt the processes and solutions offered by both emerging start-up companies and universities. 7.3 Funding similar to the SMART funding available to businesses through the Technology Strategy Board should be available to universities to support early stage proof of market and proof of concept development of ideas. February 2012

Joint written evidence submitted by Geoff Lawton, Simon Campbell, John Dixon, Paul England, Peter Machin, and Alan Palmer Economic Growth and the Pharmaceutical Sector 1.1 We the undersigned have extensive experience of leadership positions in the discovery of new medicines within large and small commercial enterprises. We very much agree with the government view that “life sciences and the pharmaceutical industry can be key drivers of economic recovery in the UK”. There is increasing recognition that the traditional business models of large fully integrated pharmaceutical companies and small venture-funded “biotechs” are important contributors to the innovation and growth landscape, but do not provide a complete self-sustaining ecosystem. This is true on a global scale, but applies particularly to the UK. Because of the historical success of this sector in the UK, we are well-placed to identify the gaps in the evolving ecosystem and to generate new business structures to complement the old models. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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1.2 The innovation process in the pharmaceutical sector is unique. Its differentiators include: — The process is lengthy; typically 15–20 years from concept to commercialisation. — The failure rate is high. Contributing factors include the incomplete understanding of the biological basis of human disorders and the variability in individual patient response to treatment. — The end product cannot be designed with the engineering certainty of, for example, an aircraft. — The marketplace is inflexible with a very limited number of payers for the end product. 1.3 The innovation process for new therapeutics has three broad phases and each phase requires very different strategic inputs. — Finding a candidate medicine. — Proving clinical efficacy and safety. — Establishing the commercial mechanism for delivery to the patient. 1.4 This submission focusses on the first of these phases which is underemphasised in the government’s Life Sciences Strategy document. This first phase builds on an understanding of disease pathology and molecular pharmacology in which areas UK academia is exceptionally strong. The strategy document provides some direction for academic research towards new potential areas of therapy for example regenerative medicine and cell therapy and also covers effectively the second (clinical) innovation stage presaging much needed and potentially valuable engagement of the powerful NHS resource in driving pharmaceutical innovation. The strategy is however inadequate in its coverage of the first phase of innovation. This is the location of the so-called “valley of death”.

Crossing the Valley of Death Process 2.1 The process of innovation in therapeutics is illustrated below:

Safety Target Hit Lead Candidate Tolerability

Market Regulatory Clinical Clinical Launch Approval Differentiation Efficacy

Analysis of genetics and disease pathology provides biochemical and cellular “targets” or systems through which the new drug is expected to exert its action. The hypothesis that modulation of this “target” will affect disease goes through a continuous process of “validation” at all stages of the path to the patient. The next stage of the process involves identification of molecules (hits) which modulate the function of the target. Further research studies transform these hits into “drug-like” leads which are then further optimized into candidate drugs. This phase is an informed “trial and error” process and very frequently involves screening of hundreds of thousands of molecules through a cascade of increasingly complex biological evaluations until one molecule with the potential to be effective and safe in the clinic can be selected for further study. Even with powerful computational algorithms that attempt to predict problems with particular compound structures and compound families, iterative cycles of design, synthesis and screening remain today the only viable method to refine favourable properties and eliminate the undesired ones in search of small molecule drug candidates for in vivo characterization. These endeavours require experts in biochemistry, medicinal chemistry, pharmacokinetics and pharmacology to act as a concerted team. The candidates are subjected to a battery of tests to demonstrate that they are likely to be safe and effective in human studies. An extensive series of clinical studies is then carried out before the product can be launched in the market. 2.2 At the stage of selection of a “candidate drug”, the innovation process undergoes a radical change. From here on the work is highly regulated. The success rate is still low. Approximately 5% of “candidates” become drugs available to patients. Importantly from an investor’s perspective, at this point the risk profile of an “asset” changes. Before this point the risk is proportional; a failure does not necessarily mean that the “target” has failed and more work to generate new and better molecules may lead to project success. After this point the die is cast, the risk is binary, the candidate either succeeds or fails. In this latter situation it is often easier for potential investors to take evidence-based rational decisions. Before this point, much reliance is placed on the cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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opinions of experts. These expert-led decisions are the critical success factor in the ﬁrst phase of pharmaceutical innovation. 2.3 From this analysis, we conclude that in order to achieve sustainable success in this ﬁrst phase of innovation, it is optimally carried out within an enterprise which houses the requisite multidisciplinary expertise and can simultaneously pursue a portfolio of drug discovery projects to ensure that at least some projects survive the highly attritional process to eventually reach the patient.

The Need for Alternative Support/Investment from Government 3.1 Overemphasis of current business models on the potential profitability of the research at too early a stage has prevented full exploitation of new knowledge. New business models for drug research therefore need to be created in order to contribute to the global drug discovery effort to reduce the burgeoning burden of disease. These new approaches will involve collaboration between different stakeholders and mixed investment from supra-government organizations, national governments, charities, philanthropists, social investors AND commercial funders with a perspective which covers both patient interest and the necessary long term view. 3.2 Faced with the need to find short term solutions to current economic threats, many pharmaceutical companies are refocusing their internal R&D expenditure towards the later stages of drug development where return on investment is quicker. An increasing amount of early stage discovery is out-sourced. This has had a substantial negative effect on commercial drug discovery research in the UK which has taken a number of big hits. Wyeth, Aventis , Roche, Merck Sharpe and Dohme , UCB, Pfizer, GSK and AstraZeneca have all closed research facilities in the UK . Recently announced reductions at AstraZeneca’s one remaining research facility at Alderley Park have confirmed that these trends seem set to continue for the foreseeable future and this means that drug discovery research in the UK is now at risk of disappearing altogether. 3.3 In the short term, this creates a great commercial opportunity for UK based contract research organisations (CROs). However, in the longer term an alternative innovation engine is needed to produce the new UK commercial base. The biotech sector is an unlikely saviour as investor appetite for funding drug discovery research has essentially disappeared. This means that funding a company on the basis of solid leads that have not yet made it to the clinic is extremely difficult. Of the few venture-funded biotechs which do achieve a successful “exit” for their investors, almost all are via trade sales. This compromises the sustainability of the sector. 3.4 In order to strengthen their pipeline of drug candidates, pharmaceutical companies are increasingly acquiring assets from biotech companies through licensing deals or wholesale company purchase. This is good news for UK biotech companies, but the lack of liquidity in the market has seen attitudes to investment become much more risk averse. 3.5 In spite of current challenges, the fundamentals of the medicines research sector remain good: the Global market for pharmaceuticals is expected to increase to $1 trillion in 2014. Growth is expected to continue as medical need increases, largely because of the marked increase in the number of people aged over 65 in the decades ahead. 3.6 Thus there is a large and growing future marketplace, considerable demand for relatively mature drug discovery assets, an excellent supply of new ideas for drug discovery, but no funding mechanism to bridge the gap and translate these ideas to an acceptable degree of maturity. 3.7 All of this creates a critical need and an exciting opportunity to recycle the excellent skills and facilities within a different social enterprise model to contribute to sustained excellence in a scientific field which has historically been one of the UK’s major successes. 3.8 UK academic excellence in life sciences is without parallel. Its continuance in the mid-long term is dependent upon a major local presence of organisations which translate the ideas which emerge from academia into new medicines delivered to patients. Academic institutions, conscious of this widening innovation gap, are making efforts to “translate” their scientific advances towards application, but have limited expertise in this multidisciplinary process and individually are unlikely to achieve the critical mass necessary for sustainable successs. 3.9 In addition to assets, infrastructure and expertise, drug discovery requires time, excellent project management skills, and money. Yet, even if all of these are present in abundance, no single drug discovery programme is guaranteed a compound that will achieve IND status and enter clinical trials. Viable businesses need a portfolio of drug discovery programmes. 3.10 Traditionally, pharmaceutical drugs have been small molecules which are synthesized by chemists, or are modified from natural products of plants or microorganisms. This has been a highly successful strategy for over 100 years, and continues to provide most of the new medicines reaching the market. These are now complemented by many new medicines recently launched and in late stage development which are so-called “biologicals”. These are large molecules most of which (excluding vaccines) are produced in small quantities, are comparatively expensive (in many cases extremely expensive), must be stored in the cold, and are delivered only by injection. Future patients (especially those of the emerging economies) will continue to need medicines cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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produced in large quantities at low cost, with good heat stability, and suitable for oral delivery. Only small molecule drugs typically achieve this proﬁle.

Social Enterprise Models 4.1 Although the traditional pharmaceutical companies and venture-funded biotechnology companies are suffering a major decline in the UK, the social enterprise sector exemplified by Medical Research Council Technology (MRCT) and Cancer Research Technology (CRT) is currently strong. These and other types of social enterprise business model provide the possibility to retain some of the skilled individuals being shed from pharmaceutical companies. Along with our academic strength, the extensive reservoir of talent is the key resource underpinning the UK’s power in this economic sector. 4.2 It’s time for a different approach. More effective ways are required to reap the innovation dividend from the UK’s knowledge creation activities and to achieve greater social and commercial value from intellectual property assets. We propose that government supports social enterprise solutions to filling the current enormous gap. This promotes integration of inputs from many stakeholders, including pharmaceutical companies, universities and medical research charities. We believe that, as in other countries, government should be a key stakeholder, both from the high value employment/knowledge economy point of view and, in the UK situation, as the major payer for medicines with a considerable interest in the affordability of future medicines. 4.3 Social enterprise solutions offer financially efficient approaches for the translation of new medical discoveries into therapies for future patients. Removal of the need for profit distribution at the early stage of the innovation process allows inclusion in the portfolio of those projects which are expected to make a significant social but not large financial return. 4.4 MRCT, CRT and the Wellcome Trust’s Seeding Drug Discovery Initiative (SDDI) are three successful UK examples of alternative business models. In each case a portfolio of drug discovery projects is funded, the project’s initiators are able to share their risk and additional partners are brought in to carry out the development and commercialisation phases. The retained stakes in commercially successful outcomes can be recycled to fund further innovative discoveries. In the cases of MRCT and CRT, the projects are operated in dedicated business focussed in house laboratories (separate from funded academic laboratories). In the case of the SDDI, the portfolio is managed virtually by the Trust with the work done mostly by CROs. 4.5 There is an increasing trend to set up academic drug discovery operations. With a few exceptions, these are unlikely to be able to operate a critical mass of projects to achieve self-sustainability and will find it difficult to generate the required business culture for success. 4.6 We propose that a series of self-contained social enterprises be established, where all profits achieved by out-licensing inventions and by spinning out venture capital fundable businesses are retained to sustain and grow the social enterprise. These may be associated with a group of academic institutions. Present government supported strategic thrusts including the Crick Centre, and Innovation Hubs at Babraham and Stevenage, could be complemented by the presence of in house drug discovery social enterprises. 4.7 As the pharmaceutical industry has contracted, the industry’s major educational role has been compromised. For over half a century, the pharmaceutical industry has provided “quaternary” education in the multidisciplinary process of the discovery of new medicines, but this activity is now seriously threatened by the major restructuring that is now taking place, Alternative routes are needed to provide training for the next generation of researchers to engage in medicines research in order to avoid the loss of this important knowledge base. Local and national governments want high quality employment, and to sustain and develop the skill sets capable of contributing to the high value knowledge economy. The new social enterprise structures would be ideally placed to complement the academic education with vocational training and fellowships. 4.8 INMedD has developed a business plan for one such social enterprise drug discovery business which employs 50 scientists and is the minimum scale to ensure continuous delivery of outputs. After five years, the institute will be self-sustaining with revenues from out-licensing deals based on generated intellectual property, grant income and training contracts. This plan is scaleable and could be replicated or could operate at larger sizes with more funding. 4.9 The positive benefits of our proposals would include: — Retaining UK leadership in the creation of new medicines. — Contributing to economic growth in the UK. — Ensuring that UK discoveries help meet the healthcare challenges of the 21st Century; quality of life would be improved within constrained healthcare budgets. — Strengthening the alignment between medicines research and patient need. Important diseases areas at presently side-lined by Pharma would receive proper attention with consequent patient benefits. — Resurrecting buried assets. Assets not being pursued by Pharma would be revived and developed (note that a start has been made by collaboration between AstraZeneca and the MRC, but this could be extended into preclinical assets). cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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— Strengthening the UK science base with exciting career opportunities for world class scientists to reap the beneﬁts of our internationally competitive science education. — Improving translational research in the UK. New biology emerging from UK laboratories would be expertly exploited by world class medicinal chemists; the biotech sector would be revitalised as an additional source of innovation/discovery with a sustainable return on investment. We are independent consultants to, and non-executive directors of, a variety of drug discovery organisations. John Dixon, Paul England, Geoff Lawton and Peter Machin are directors of INMedD, which is a company limited by guarantee developing a drug discovery social enterprise. Alan Palmer is CSO of MS Therapeutics. February 2012

Written evidence submitted by Tokamak Solutions UK Ltd

Introduction 1. Tokamak Solutions UK Ltd is a private company based at Culham that aims to develop commercial applications of spherical tokamaks and fusion neutron sources. Culham is currently the world-leading centre for magnetic confinement fusion research. Commercial opportunities for magnetic fusion are beginning to emerge and Tokamak Solutions benefits greatly from being on the Culham campus. Fusion research is one of the very few areas today with enormous global economic potential where the UK has a distinctive global lead. 2. Tokamak Solutions has secured investment from Sir Martin and Lady Audrey Wood, the Rainbow Seed Fund, Oxford Instruments plc and other private investors including members of the Oxford Investment Opportunity Network. Tokamak Solutions has also been awarded two R&D Grants by the Technology Strategy Board and is anticipating further private investment. 3. The Minister of State for Universities and Science, David Willetts, said last year that he would like to see the UK’s scientific and intellectual lead in fusion turn into a technological and commercial lead. Tokamak Solutions aims to play its part in turning this vision into reality. 4. Tokamak Solutions has a distinguished scientific and environmental advisory board chaired by Lord Hunt of Chesterton, FRS and including Sir Martin Wood, FRS (co-founder of Oxford Instruments plc); Jack Connor, FRS (one of the most influential theoretical plasma physicists in the international fusion programme), Professor George Smith, FRS (emeritus professor of materials at the University of Oxford) and Professor Bill Lee (professor of ceramic engineering at Imperial College and Deputy Chair of the Government advisory Committee on Radioactive Waste Management (CoRWM). 5. Tokamak Solutions is working on several aspects of commercialisation of fusion. For example we are developing a spherical tokamak as a plasma research and training facility and are establishing the feasibility of a fusion neutron source suitable for production of medical isotopes, transmutation of nuclear waste and other applications. Tokamak Solutions is also keen to progress the idea of a compact fusion neutron source as a national “user facility” for materials research. 6. Although fusion research is dominated by “big science” facilities such as JET at Culham and will probably be dominated by the ITER facility in France for many years in the future, there is still plenty of scientifically and economically valuable work that can be undertaken by small companies. For example, Tokamak Solutions—in a groundbreaking experiment last year in partnership with Oxford Instruments and the Czech Technical University—achieved a world first in using high temperature superconducting magnets on a tokamak.

Evidence 7. We are pleased to present our views on the questions posed by the Select Committee:

A. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 8. The problems of funding the commercialisation of research arise because of the risk and uncertainty involved. The technology may or may not ultimately work; competitors or alternative technologies may get there first; and the costs and timescales of the development process may be substantial, as well as being difficult to calculate accurately. Investors in commercialisation of research need to be patient!

9. As a result, there is little venture capital aimed at technology businesses in the UK. One important exception is the Government funded, but privately managed, Rainbow Seed Fund.

10. The best way to overcome the difﬁculties is through a combination of business angel and seed fund investment and Technology Strategy Board (TSB) grants. The Enterprise Investment Scheme helps to encourage business angel investment and R&D tax credits are increasingly important. Corporate venturing investment by established business can be highly valuable, but is quite rare. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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B. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 11. Tokamak Solutions faces a particular challenge similar to many biopharmaceutical companies developing new drugs—the potential value of the technology is very significant, but the risks are substantial and the time and money required to validate the technology are quite daunting. 12. Tokamak Solutions needs to build international collaborations in common with many other high technology companies. UK participation in international science and innovation programmes can help this process and UK Trade and Investment can provide practical support to companies. 13. There is a range of important non-financial solutions, sometimes described as the elements of an “innovation ecosystem”, that can assist in the commercialisation of research. These include clusters and business networks and can often work best around a university or research laboratory. A thriving innovation ecosystem can significantly reduce the risks of commercialising research and substantially improve access to finance. 14. In the case of Culham Laboratory where Tokamak Solutions is based, the elements of the innovation ecosystem include: — An innovation centre providing offices and laboratories on a flexible basis to start-up businesses and managed by a private sector business, Oxford Innovation.34 — A technical support package for businesses in the innovation centre provided by Culham Centre for Fusion Energy. — A Fusion Industry programme managed by Culham Centre for Fusion Energy that highlights commercial opportunities in fusion to UK companies. — Grow-on space on the campus for businesses expanding from the innovation centre. — A local technology business angel network, Oxford Investment Opportunity Network.35 — A range of local suppliers of specialist products and services to science-based businesses. — A network of serial entrepreneurs with experience of growing technology based businesses.

C. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 15. We are aware of many examples of UK-based research being commercialised outside the UK that occurred through lack of funding and lack of a good innovation infrastructure. In other cases, research commercialisation companies have been able to access start-up funding in the UK, but have then been unable to fund the next stages of growth and as a result have lost out in competition to better funded companies (sometimes with inferior technology) from other countries. 16. In the case of magnetic fusion, the course is set for the UK to lose its world lead as the next step towards commercialisation of large scale fusion is taken with ITER in France. However, because of the long timescales for “big science” fusion, there is still time for fusion businesses to emerge from Culham Centre for Fusion Energy (CCFE) and for a vibrant cluster of research activity and research intensive businesses to develop further at Culham. Indeed it is probable that JET at Culham will continue to be the world’s leading fusion reactor for another 10 years before ITER takes the lead. 17. The Culham site already has a highly successful innovation centre (which is currently home to some 20 high tech start-ups) and there are several local fusion research spin-off businesses such as Oxford Technologies and Tokamak Solutions. There are also several local companies with signiﬁcant business in fusion including Tessella, Oxford Instruments and UKAEA Ltd. So long as CCFE’s Fusion Industry programme continues to promote ITER as an opportunity for UK businesses, fusion related business around Culham continues to grow and the Government continues to invest in the world-leading research at Culham, then the UK can remain in an excellent position in the commercialisation of fusion research as the opportunities expand rapidly.

D. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 18. In the case of Tokamak Solutions, we have beneﬁtted from EIS tax relief for our private individual investors, R&D tax credits and TSB R&D grants (to be renamed SMART Awards). We have also received investment from the Rainbow Seed Fund. Crucially the Rainbow Seed Fund was our ﬁrst investor and provided valuable advice as well as funding for the development of our initial business plan.

E. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 19. Strengthening TSB R&D Grants will have a big impact in helping the early stages of commercialisation. The award of such grants often attracts private sector investment. 34 www.culham-ic.co.uk 35 www.oion.co.uk. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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20. It would be helpful if exceptional R&D Grants/SMART Awards could be reintroduced. These used to be worth up to £450,000, compared to the present maximum of £250,000. 21. Steady improvements to R&D tax credits will help substantially, as will the welcome improvements to the Enterprise Investment Scheme.

F. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 22. This would certainly be valuable and the following direct measures to support companies should be taken: — Launching additional Enterprise Capital Funds focused on technology-based businesses. — Enhancing R&D tax credits further for SMEs. — Enhancing EIS specifically for investors in research commercialisation companies. For example, the annual investment limits for investors and the limits on company balance sheet could be increased for R&D intensive companies. There could be further enhancements to EIS to reward “patient investors” in R&D intensive companies. — Re-introducing a Corporate Venturing Tax Relief for trading companies that invest in R&D intensive companies. — Strengthening existing funds such as the Rainbow Seed Fund which have a strong track record in commercialisation of research and can be highly effective at helping new businesses to prepare for further rounds of private investment. 23. In addition some further measures should be taken to encourage more private investment into science and engineering: — The Bank of England used to produce an influential annual report on finance for SMEs. This report could be re-instigated with a focus on technology-based SMEs and would provide feedback on the effectiveness of Government policy in this area. — In the past, winners of SMART Awards (R&D Grants) were presented with their awards by Ministers. This provided valuable publicity and enhanced credibility to the winning companies and was a public demonstration of Government backing for entrepreneurs and the commercialisation of research. The practice should be reintroduced. UK Trade and Investment could then help to promote SMART Award/R&D Grant winners internationally. — The Anglo-US Financing Innovation symposium to be held in London this summer is an opportunity to showcase the successful commercialisation of research in the UK and to highlight future opportunities to investors and the public.

G. What other types of investment or support should the Government develop? 24. There are still some lessons to be learned from the way the US Government supports research commercialisation: — The SBIR (Small Business Innovative Research) programme in the US is well established and highly effective. By contrast the UK SBRI programme is still relatively modest and could be developed further. — The US Department of Energy funds research directly in small companies including in areas such as fusion research, so long as the quality of the proposed research is sufficiently high. UK Government Departments and the Research Councils could adopt a similar approach. It may be best to direct this funding through the industry-focussed TSB to avoid counterproductive competition for funding between academia and industry. 25. The Government has a vital role as a customer for high technology. In the case of fusion, CCFE purchases many high tech products and services from UK companies and also promotes opportunities for UK companies to supply to ITER. This is good practice and is important for the future growth of fusion-related businesses in the UK. Tokamak Solutions itself has already benefited through a contract to supply services to ITER. However, there is much more that could be done and the Government should continue to look for opportunities to be a customer for high technology in fusion and other sectors. 26. Culham Innovation Centre has a track record of supporting the commercialisation of research over more than 10 years. A few other Government research laboratories have similar on-site centres. Such centres are a visible demonstration of a laboratory’s commitment to research commercialisation and they generate significant local and national economic benefits. The Government should encourage all its research laboratories to establish innovation centres. Private sector operators could be invited to refurbish and manage existing surplus buildings, which can provide healthy financial returns for the research laboratories as well as demonstrating their commitment to the commercialisation of research. 27. An on-site innovation centre is a visible demonstration of a research laboratory’s commitment to research commercialisation. The Government should perhaps be asking those laboratories without such a centre whether cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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they are seriously committed to the commercialisation of research and the resulting local and national economic impacts.

Conclusion

28. Our conclusion is that the UK Government is already taking several measures (improvements to EIS; enhancements to R&D tax credits; strengthening of TSB funding) to assist research commercialisation companies such as Tokamak Solutions. However, there is still much more that can—and must—be done if the potential of the UK’s excellent research base is indeed to be the basis for future economic growth.

29. Speciﬁcally we recommend: — further improvements to EIS for investors in research commercialisation companies; — further improvements to R&D tax credits; — improvements to R&D Grants/SMART Awards, including the reintroduction of exceptional awards; — reintroduction of a Corporate Venturing tax relief; — the establishment of privately managed innovation centres similar to Culham Innovation Centre at all Government research laboratories; and — further improvements to the role of Government as a customer for high technology.

30. We agree with David Willetts that there is an important and immediate opportunity to turn the UK’s scientiﬁc and intellectual lead in fusion into a technological and commercial lead. Tokamak Solutions aims to play its part in turning this vision into reality. February 2012

Written evidence submitted by Dr Michael M Hopkins, SPRU, University of Sussex

Submission on Financing High-tech Small UK Firms

1. Michael Hopkins is a Senior Lecturer at SPRU, University of Sussex, conducting research on innovation and financing in biotech and other high-tech areas. For the last 15 years his work has been funded by the UK’s ESRC, MRC, EPSRC, BIS, TSB, NESTA, European Framework programmes, the ERC, and the USA’s NSF. He has published over 20 academic papers on innovation in the life sciences, and he trains students and industry executives in aspects of financing and undertaking biomedical innovation. The author has no financial interest in any of the firms discussed.

2. This submission addresses the questions posed by the Committee in relation to the UK therapeutics sector.36 Caution is needed when generalising from an industrial sector, especially therapeutics which is in many ways atypical. However, the sector is of interest for several reasons. First, therapeutic R&D is an area where the UK has tradition strengths and has made important contributions, for example, developing beta- blockers, stomach ulcer treatments and humanised antibody therapies. Second, it generates significant social benefits from the development of therapeutics that reduce disease morbidity and mortality; Third, the sector is one of the most economically important UK high-tech manufacturing sectors, whether measured by revenues, R&D spend or employment.37 Finally, therapeutic innovation requires a bridge over “the valley of death” at one of its widest and deepest points: therapeutics take ~14 years on average from discovery to launch, and cost hundreds of millions of pounds to develop. The state of small UK therapeutics firms’ financing therefore provides an important window on the capacity and willingness of UK financial institutions to support resource intensive high-tech firms.

3. The analysis that follows is based on (unpublished) data from the SPRU dataset of all therapeutics firms founded in the UK since 1980 that have publically disclosed at least one proprietary therapeutic research programme. The dataset covers 247 UK firms, a considerably smaller number than found in this sector by others38 due to the focus on UK-founded firms only and more stringent selection criteria (hence we deliberately avoid using the terms “biotech” and “life sciences” to describe these firms, while other sources discuss the wider sector). 36 In this context therapeutic innovation refers to the generation of novel small molecule drugs, biologics such as vaccines, and monoclonal antibodies, as well as emerging options such as nucleotide-based and cell therapies. 37 BIS (2010) Economics paper No 2 Life Sciences in the UK—Economic analysis and evidence for “Life Sciences 2010: Delivering the blue print”. BIS: London. 38 BIS (2011) “Strength and Opportunity 2011—the landscape of the medical technology, medical biotechnology, pharmaceutical and industrial biotechnology sectors in the UK” BIS: London. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 4. The UK therapeutics sector faces major problems raising money, and our research suggests that raising finance often takes up a substantial portion of senior management time. The commercialisation of research in the UK is widely perceived to be significantly more difficult than in the US, although easier than in some parts of Europe. This is partly because investors perceive they will get better returns elsewhere (eg mining), creating a self fulfilling prophecy as UK high-tech firms are underfunded compared to their US counterparts. Our view is that the main problem facing small therapeutics firms attempting to commercialise research in the UK is reduced support in recent years from the UK stock markets. This is because they have unfortunately often failed to provide sufficient returns for investors given the high risks and long duration of investment.39 This constrains exit markets for VC funds, which reduces their returns and makes it more difficult for them to raise new funds to support new firm. As a result, after years of growth, the UK population of small therapeutics firms is now in decline.40 It is likely that this is a common problem across high-tech sectors, eg “clean tech”. 5. Most UK therapeutics firms with no products or revenues seek external finance from equity investors to cover their R&D expenditure for a loss making period of 10 or even 20 years.41 Most have relied on a succession of investors working in a relay, sometimes referred to as a funding escalator. These include other therapeutics firms, business angels, venture capital (VC) funds, and institutional investors supporting stock market placings. 6. VC funds supported 140 of the 247 firms in the SPRU dataset. The stock markets have also played a prominent role in therapeutic innovation, supporting 76 of the 247 firms. During the recent economic boom, high stock market valuations provided supportive conditions for emerging therapeutics firms, encouraging VC to invest also. Previously leading firms have raised more than £100 million (at 2010 prices) in stock market placings, however since 2000 no UK firm has raised such an amount and none has had its initial public offering on the main list of the London Stock Exchange since 2006. This situation has been suggested as arising following a number of high profile failures of products and management.42 However these problems are also apparent beyond the life sciences, as returns are often lower in high-tech than elsewhere—as a crude example the UK TechMark index has underperformed the LSE’s main market over the last decade (by 33% in 2010). 7. As stock market funding has become harder for emerging small firms to obtain, VCs and other early stage investors have become more focused on finding corporate acquirers for their investee firms. This has the result of shortening the time firms have as independent entities to advance their R&D projects, from over 11.5 years where stock market investment is obtained, to seven years or less. This is concerning because we find that the average UK therapeutic firm required around seven years to advance its first project passed Phase II trials (an important milestone in drug development and a key opportunity for out-licensing drugs to commercial partners). Moreover the proportion of start-ups in the sector being bought before their fifth year of independence has risen from less than 15% of those founded in the 1980s to over 30% of those founded from 1990 to date. These shorter time frames may also be focusing investors’ attention on developing more incremental innovations (eg drug reformulations) rather than entirely new therapeutic technologies.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 8. Only 7 of 247 firms in the dataset emigrated. However, promising therapies are often licensed overseas because money and expertise are not available in the UK. Research begun in UK research institutions and firms is often be continued abroad as UK organisations seek partners with the aligned strategic interests and the highly specialised complementary assets needed to commercially exploit the research. It is routine for UK organisations to in-license and out-license therapeutic projects through international alliances. The optimal point of out-licensing for a small firm is often suggested to be after Phase II clinical trials. Of the 247 firms studied, 42 have had at a therapeutic project which has passed Phase II trials. Data is available on 40 of these, and analysis reveals that 13 worked with a non-UK firm (as a partner or acquirer) to exploit their lead project before they had reached this important milestone. This was necessary even during the years when therapeutics firms had relatively strong support from the stock market. 9. Over a third of UK small therapeutics firms (78/247) had been acquired by the close of 2010. This is far more than had failed (25) or emigrated (7), the remaining 137 firms were still being in business at the end of 2010. Where firms have been acquired, in 37/78 this was by foreign firms. In recent years the pace of acquisitions in the sector has increased as accessibility of stock market capital has decreased. In particular this has led to the purchase of a number of promising firms such as BioVex, bought by Amgen for over $400 in 39 BIGT (2009) The Review and Refresh of Bioscience 2015. Available at: www.berr.gov.uk/files/file49805.pdf 40 Office of Life Sciences (2011) Strength and Opportunity 2011. HM Government. www.bis.gov.uk/assets/biscore/innovation/docs/s/11-p90-strength-and-opportunity-2011-medical-technology-sectors.pdf 41 A few firms reduce their reliance on external investment by assisting the development of novel products with revenue from sales of niche products launched by other firms (eg Shire Pharmaceuticals). 42 Smith, G, Akram M S, Redpath K, and Bains W (2009) “Wasting cash—the decline of the British biotech sector” Nature Biotechnology 27(6) 531–537. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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cash, plus future milestone payments (perhaps worth $1Bn in total) and Astex’s merger with Californian ﬁrm Supergen—both reportedly due to a lack of stock-market support in the UK.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 10. I am unaware of evidence on this question in relation to therapeutic innovation. A systematic external review of the contribution of TSB funding would be welcome. At present the only report I know to have been undertaken (by PACEC) claims returns for the tax payer of £7 for every £1 invested by the TSB. This suggests the TSB is better at making returns than almost all VC funds. If this is performance can be maintained (it may be unpredictable, because returns on investment are dependent on small numbers of very high performing outliers) this suggests that collaborative R&D schemes are a better use of public resource than many other public policy support schemes.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 11. Taking a sector specific view on therapeutics once again, any additional benefits of government funding must be seen in the context of massive commercial cut-backs in UK based R&D and a reduction of investment in therapeutic innovation by the public markets. In 2008–09 estimates suggest that industry invested £8.9 billion in healthcare R&D (albeit including large UK pharmaceutical firms that invest much of this outside the UK) while government invested around £1.7 billion. Since then large pharmaceutical firms have cut thousands of UK jobs, and capital markets have continued to fall far short of the historic levels of support they provided for the small firm sector before the sector lost investor support (78 firms in the SPRU dataset received over £5.5 billion at 2010 prices between 1987 and 2010, but this has slowed recently). Government policy must address the huge reductions in financial support for the UK sector from industry before they can help to support growth and improve bridging of the valley of death. 12. The UK has the most advanced pipeline of therapeutics projects of any European country, and is often suggested to be performing well in therapeutic innovation—perhaps a sign of successful prior policy making.43 However this position is not as robust as it seems. A study undertaken by SPRU for the European Commission in 2008 used 16 indicators to assess the relative strengths and weaknesses of 19 (mainly European) countries in commercialisation of biotechnology (broadly defined).44 The study reported that, controlling for size, the overall performance of the UK was only just above the EU average (leading countries were Switzerland and Denmark). The most significant relative weakness identified by the study was the amount of government funding invested in biotech related-R&D (relative strengths included the volume of VC finance, revenue per employee, number of corporate alliances and volume of scientific publications).

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 13. Over recent years the UK governments have promoted a number of venture capital-backed investment schemes with varied results, suggesting that the design of funds (eg avoiding small size, or local/regional focus) is crucial to their success.45 Life sciences investors maintain that despite difficulties VC funds remain interested in exciting new life science companies, if the opportunity is exceptional enough. SPRU data on therapeutics firms finds evidence of VCs investing in the earliest phases of such firms (and even founding firms). A focus on such firms, and a concentration of resources in these is appropriate because the UK has a relatively large number of relatively small therapeutics firms vying for investor attention—while it is claimed that VC has rarely invested sufficiently.46 14. Which sources of capital are needed for successful therapeutic innovation? The SPRU dataset of therapeutics firms tracked 40 of 42 small UK therapeutics firms which generated at least one project that passed a P.II clinical trial. The analysis shows that in 25/40 cases stock markets played a role in supporting these firms, while only 10 relied on VC alone. Adjusting for the numbers of firms using different types of investors, stock market firms produce more successes than expected, and VC less. The distribution of successes is statistically significant (P = 0.01). The findings are intuitively supported as VC funds typically lack the timescales and the deep-pockets to fund firms through to the valuation inflection point that often follows successful P.II trials. 15. Where exit opportunities are limited VC are less unwilling to invest—and rightly so. If corporate acquisition by a small number of firms with co-specialised assets (regulatory expertise, appropriate therapeutic focus and sales forces) is the main exit route for investors, markets may not perform efficiently. For these reasons, strong stock market support for therapeutics firms would be beneficial as an alternative. Stock markets have (historically) provided longer term investment, more capital, and been a sufficient (even without VC) 43 BIS/DoH (2010) BIS Economics Paper No 2: Life Sciences in the UK—Economic analysis and evidence from “Life Sciences 2010: Delivering the Blueprint” BIS: London. 44 Patel, P, Hopkins, M M, Arundel A (2008) Sectoral Innovation Systems in Europe: Monitoring, Analysing Trends and Identifying Challenges in Biotechnology Report for Europe Innova. SPRU: Brighton. 45 NESTA from funding gaps to thin markets. 46 Bains, W (2009) Venture Capital and the European Biotechnology Industry. Palgrave Macmillan: London. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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source of capital for successful therapeutic innovation. Furthermore the availability and volume of stock market support for therapeutics ﬁrms in the UK has been strongly associated with VC investment in the sector. Vibrant stock markets will pull VC into supporting the sector, so long as these markets can provide VCs with valuations for their investees that generate returns and offer more choice of exit than trade sales alone.

7. What other types of investment or support should the Government develop? 16. The biggest pool of money—from institutional and retail investors who used to invest hundreds of millions annually in the sector through stock markets—is currently ignored in the Government’s recent life sciences strategy. Finding a way to make life sciences (and indeed other high-tech investment opportunities) attractive to stock markets would be a visionary strategy, with returns from investing in innovation as the incentive for investors. 17. There has long been debate on boosting stock market investment in the UK and the committee’s focus suggests there is little perceived improvement in the situation. A raft of more radical measures may be needed to build market demand. Therapeutics firms and other technology firms are often high risk, illiquid, long term investments, yet as one stock analyst I interviewed recently said “social benefit doesn’t increase your [stock]rating”. 18. This is a major drawback because investors have little incentive to invest in these firms and their potentially beneficial and profitable innovations over socially neutral (or even destructive) firms. This situation should be tackled even if these investments look prime facia unviable in the present climate—because higher levels of investment yield firms that are more likely to be successful. Well managed firms with more cash to deploy can afford to be opportunistic, and can, in theory, afford to build a portfolio of projects and build scale to become more resilient, such as large pharma does. Such a model breaks down if firms need to go back to capital markets when they have just had a product failure or after long periods of low news flow (and associated low-liquidity stock price spirals). Thus investment is needed to build firms with sufficient scale to do well. The UK has generated a number of £1Bn therapeutics firms in the past (eg Celltech, Shire and more recently BTG). 19. To deal with this complex demand-generation problem government should use a systematic approach to tackle the problem in a number of ways: 20. Boost specialist knowledge to encourage investment—There are fewer specialist fund managers with a dedicated interest on therapeutics currently than has been the case during the boom years of the sector, and stock analysts are also unable to dedicate as much attention to the sector as its size and relative value diminishes. Similarly specialist journalists are also not able to invest as much time writing about the sector when it is a smaller part of the market. This has a negative impact on investment in the sector as therapeutic innovation is a complex area where most investors lack appropriate knowledge and therefore may be unwilling (quite reasonably) to invest. A pool of specialist investors or investors with high-risk appetite therefore needs to be encouraged. Tax incentives (perhaps on bonuses) could attract fund managers to cover the sector, but only if they have clients. Small grants for the production of suitably objective equities research and media stories (even TV programmes) could begin to raise awareness of the UK sector to showcase promising developments as and when they arise. This could complement a move towards more mainstream investment incentives where investors will require high quality information rather than sponsored research by interested parties (see below). 21. Extend tax efficient investment schemes to encourage stock-market investors back to therapeutics and other technology stocks. I support the BIA’s suggestion of a UK equivalent of a French Fonds Commune de Placements dans l’Innovation (FCPI)—designed to encourage popular investment in hi-tech industries.”47 However such a scheme needs to prevent the formation of funds that are a) subscale and b) do not invest in tech-firms. Lessons need to be learned here from the failure of VCT to invest in technology firms. Extension of existing schemes such as VCTs and EIS has been suggested before,48 and it remains important to channel investment through such schemes to high-tech firms. 22. Change EC state aid rules—large investments stemming from government initiatives (ie tens of millions of pounds, rather than hundreds of thousands) are currently difficult to invest in single firms because of EC state aid regulations that prevent government subsidies that could be seen as distorting European markets.49 Government should explore how European countries may amend these rules so as to preserve their original function without damaging investment in emerging technologies and related high-tech firms. 23. Take research closer to the market before commercialisation—The public sector should continue to develop funding streams taking basic research downstream where there is clearly identified benefit from doing this (ie not replicating pharma’s drug screening capabilities). As important as fundamental research is, in a climate where there is less development funding, the stock of unexploited fundamental research will only grow. Narrowing the gap for commercial funds to bridge, or co-funding key trials is an important contribution that could be made, in return for appropriate benefit sharing (eg reduced prices for UK patients on approved therapies). 47 www.bioindustry.org/document-library/bia-response-to-eis-and-vct-consultation/ 48 See Engineering Technology Board (2006) SET and the City: Financing Wealth Creation from Science Engineering and Technology. ETB: London; Bioscience Innovation and Growth Team (2009). 49 www.berr.gov.uk/Policies/business-law/state-aid cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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This submission is based on work undertaken in EPSRC-sponsored grant EP/E037208/1 and this submission was supported by ESRC-TSB-NESTA-BIS funding on Innovation Research Centre Distributed Project grant RES-598–25–0054. February 2012

Written evidence submitted by the Society of Biology The Society of Biology welcomes this opportunity to comment on the commercialisation of research in the UK and how it can be improved to realise the signiﬁcant potential for growth that our world-leading research affords. The Society is a single uniﬁed voice for biology and is in a unique position to provide perspective on the commercialisation of research from across the breadth of the biosciences. This response highlights the issues surrounding translational research in the life sciences—a typically long-term and complex area that brings risk and opportunity. We have gathered evidence and expert opinion from our membership including in the medical, agricultural, plant, and nutrition sciences, to present the concerns of the community as a whole. The response is prepared with the Anatomical Society, the Association of Applied Biologists, the Biochemical Society, the British Pharmacological Society, GARNet, the Nutrition Society, the Physiological Society and the Society for Applied Microbiology, and with input from a number of individual Members and Fellows.

Summary — The UK is a world-leading research nation with tremendous potential for science-led innovation and growth. Our leadership position may be threatened by the expanding number of researchers globally and by our relatively declining rate of national investment in research. — Translational research in the life sciences offers great opportunity for growth but capitalising on this is typically a long-term and complex process for which funding is difficult to secure. Government should incentivize and support investment in early stage development research. — The Growth Strategy rightly identifies that infrastructure investments needed for the future do not align with amounts available from traditional sources of finances; however the Government needs to set out measures to address these challenges and how this will work with current funding streams to produce economic gain. — Collaboration helps to reduce risk, shares costs and brings in expertise, key skills and knowledge. This should be facilitated across university departments, between research institutions, and with a combination of government initiatives, industry and charitable support. — Academics who engage in translational research should be recognised and rewarded appropriately, and supported in respect of filing IP and as founders of spin-out companies.

Consultation Questions What are the difﬁculties of funding the commercialisation of research, and how can they be overcome? 1. Business Development Expertise Universities differ widely in the expertise and experience of staff dedicated to the successful commercialisation of intellectual property (IP). Personnel (researchers or otherwise) must have the business development acumen to identify ideas with commercial potential from the range of ideas generated by the University, ascertain the true worth of the potential IP and develop suitable business collaborations to realise commercial opportunity. Similarly, SMEs may not have the requisite expertise to deal with IP. High quality commercialisation and IP protection and support should become integrated in the research phase and not just “tacked on” at the end of the later development phase, and should not be exploitative of researchers, as some academics have found. Institutions such as UMI3, The University of Manchester Innovation Group,50 provide information and resources for researchers in this respect. Similarly, Auckland Uniservices51 in New Zealand was cited as a reason for re-location of one academic, who moved spin-out Symansis52 to NZ from the UK. The Wellcome Trust Technology Transfer provides applicants with expert advice in commercial law and business development to enable funded projects to succeed. It would be prudent to learn from these and other effective models.

2. Academic Recognition The excellence of a University or academic has until now been judged at review on the basis of scientific achievement, publications and achievement of grant-funding, with less focus on translation and impact. Thus the former have remained academic priorities. Greater recognition for achievements such as filing IP and 50 The University of Manchester I3 (UMI3) was formed after the integration of the University’s business incubation services provider, UMIC, and its Intellectual Property commercialisation company, UMIP. www.umi3.co.uk/ 51 Auckland Uniservices manages the University’s intellectual property and is responsible for all research-based consultancy partnerships and commercialisation. www.uniservices.co.nz/ 52 Symansis www.symansis.com/aboutus/default Symansis is a company that produces high quality reagents for the use of researchers in the field of cell biology. The company was founded by a group of leading cancer research scientists from the UK, USA and New Zealand. The company is situated in the South Island of New Zealand. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:04] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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forming industry collaborations (at a realistic value) could address this deﬁcit and it may be redressed by the REF “economic impact score”. Knowledge transfer should be recognised as a contribution worthy of academic recognition and reward. Economic impacts in terms of “spillovers” from research are also important and where possible should be rewarded; the RAND Corporation and others have made some attempt to quantify this.53

3. Intellectual Property It is important that high quality commercialisation and IP protection support should be incorporated throughout the whole process of translational research to commercial product. Across all sectors, the cost of protecting IP can be a major obstacle, and the proliferating need for IP rights can push up IP transaction costs and hinder small, younger firms from entering markets. Hargreaves’ recommendations in his review of Intellectual Property and Growth54 could particularly benefit SMEs, by delivering easier copyright licensing, a single European patent and access to lower cost IP advice. We look forward to the implementation of the Hargreaves recommendations and beneficial effects on innovation and growth in the UK economy.

4. Early Stage Investment & Risk It is widely perceived that a lack of early stage investment and lack of proof of concept funding are common limiting factors of translational research. In the Life Sciences, significant investment is often needed to sustain the translation of basic research until risks are sufficiently reduced to unlock other funding streams such as equity investment. Historically, schemes offered by the Regional Development Agencies to support proof of concept funding were useful to early stage University spin-out companies where matched funding could be secured. However, small start-up companies often do not have matched funding available and therefore are not eligible for such awards. SMEs can struggle to match-fund or have facilities to match in kind and are therefore less well able to progress a concept to market. This is addressed to some extent by Innovation Vouchers, although they afford only modest financial support. Seedcorn capital is required to plug this gap and enable access to the new schemes offered by the Technology Strategy Board such as the old “Smart” awards.

Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 5. It is difficult to commercialise research in areas where pathways to production are long. The difficulties of risk and its impact on securing early stage investment are discussed above and apply broadly and detrimentally to the life sciences; this has relevance for developments in food for human consumption and the related agriculture, plant science, plant breeding and health sectors. This is note-worthy not least because of the implications for growth, but also in the light of potential food insecurity associated with climate change, global fiscal uncertainty and habitat loss. Of relevance also are the regulations and restrictions on Genetically Modified Organisms discussed later in our response.

6. Developing Pharmaceuticals The UK has specific challenges and opportunities around development of new drugs. However there is a risk that in the future there will be insufficient programmes to feed through into big development pipelines. Overall, pharmaceutical deal-making activity fell by 18% in 2011, driven by declining R&D productivity and “blockbuster” drugs coming off patent.55 The government must address this issue in partnership with universities and industry to ensure our true potential is realised for economic growth and societal health. This can be achieved by incentivising more openness and collaboration, encouraging the stratification of drugs and less concentration on a narrow range of clinical conditions and therapeutic approaches, along with concrete short-term incentives for risk-averse commercial companies to embrace these principles.56 7. The British pharmaceutical industry (Pharma) is conservative in the selection of drugs for development. Increasingly, because of the risk and long lead time, researchers must develop a drug to clinical stages before industry will take it on. This not only requires a great financial investment from the institution, but places the risk, at its highest, on the academic and university. As funding for proof of concept is extremely difficult to secure, Universities must “pick winners” to develop a credible idea from the large number generated by research. At spin-out stage, the University remains liable for costs and must manage the company, ensuring a profit or sale, which may create a conflict of interest concerning the employment and activity of academic staff. Drug development requires large sums of money, and the time taken for return on investment can be very long; this is not an area that appeals to the majority of venture capitalists (VCs). In addition, the UK pharmaceutical research sector has shrunk because of mergers and losses which means there are fewer companies to approach in search of relevant experience and capability. Given that few pharmaceutical 53 Medical Research What’s It Worth?: Estimating the Economic Benefits from Medical Research in the UK www.wellcome.ac.uk/stellent/groups/corporatesite/@sitestudioobjects/documents/web_document/wtx052110.pdf 54 Digital Opportunity. A review of Intellectual Property and Growth. An independent report by Professor Ian Hargreaves www.ipo.gov.uk/ipreview 55 Data from Pharma Ventures research drawing from its PharmaDeals database which follows, analyses and records deals worldwide and contains over 43,000 deal records. www.pharmaventures.com/aboutus/press/news/1698 56 Science Question Time: The Future of Drugs. www.biochemist.org/bio/03401/0054/034010054.pdf cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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companies are based in the UK, and trade sale or licensing is a key objective, pharmaceutical company start–ups with Angel investment are likely to see that their technology or product will be exploited outside the UK. 8. Drug discovery is a multistep process involving different research groupings, so it is important that the funding schemes are directed at funding groups that can also show a viable plan for commercialising the end product. This change from individual University department control could spread the ﬁnancial cost and risk across departments, or between universities. The “Easy Access IP” initiative has allowed a grouping of UK Universities to share early-stage IP in order to further develop opportunities in-house, maximising and simplifying university-industry partnerships.57 It is important to capitalise on the strength of our universities with the capability to conduct complex early drug development studies in a safe environment and support inter- university technology transfer and knowledge translation in early development. It is also important that funding is provided for a reasonable length of time with appropriate milestones, and to maximise the value of early stage clinical trials. Long term collaborations that are based on in-kind contribution and other innovative non- ﬁnancial vehicles should be recognised and supported.

What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 9. Asterion, a successful spin-out from the University of Sheffield developing novel therapeutic proteins was heavily funded by Beaufor-Ipsen, a French Pharma business, and by USA-based Genzyme when no UK-based funding or a joint research and development deal was forthcoming. As mentioned previously, Symansis was moved to New Zealand because of the decline of Pharma in the UK, and the beneficial IP protection support available there. Big Pharma’s own recent retraction within the UK means that much UK research in this field must now be commercialised elsewhere. 10. Few large plant biotechnology companies exist in the UK. Recently, leading chemical company and GM plant specialists BASF stopped developing and marketing genetically modified crops in Europe to concentrate on the American and Asian markets this year.58 The assumption that GMOs carry a higher risk than other types of novel foods from regulatory authorities and media alike has led to slow progress, increased development, trialling and registration costs, and high consumer scepticism. Government should base GMO legislation on sound science with a proportionate response to risk, and adequate support for GM research. 11. Regulatory barriers in the UK/Europe, especially around the conduct of clinical trials, along with GMO legislation mean that other countries are becoming more attractive as sites for commercialisation of research. The government should not only encourage other countries to have high standards and controls around ethical concerns, but help simplify legislation in the UK to address this imbalance. For instance, transposition of European Directive 2010/63/EU should be harmonised across Europe, whilst maintaining high standards, to ensure that the UK is not at a competitive disadvantage in either in the fundamental or translatable research using animal models. 12. Research and development investment in a group of Asian economies (including China, India, Singapore, South Korea, Taiwan and Japan) has tripled in the past 15 years, and has now collectively reached the US level of investment (higher still than the UK’s investment).59 Journal articles have tripled, high tech industry is being fostered, and China particularly is opening up research to external collaborations. Meanwhile UK applications to the European Patent Office fell by 9.4% between 2010 and 2011, while Sweden, Germany and France all increased their applications and China’s patent applications grew by over 27% since 2010.60 Emerging markets in India and China have proved attractive to Big Pharma, with AstraZeneca and Bayer HealthCare forming partnerships with companies in the East in the face of declining Western sales growth.61 A report by BIS on the International Comparative Performance of the UK Research Base states that while the UK is a leading research nation in terms of annual publications, and is far more efficient than larger countries (such as the US and China) in terms of output per researcher, our leadership position may be threatened by the declining share of researchers globally and by our declining share of global spending on research.62, 63

What evidence is there that Government and Technology Strategy Board (TSB) initiatives to date have improved the commercialisation of research? 13. While it is still too early to quantify the tangible effects of the Government and TSB initiatives, some initiatives have been welcomed, the Knowledge Transfer Networks for instance showing some dividends. For example, in 2011 Medical Research Scotland changed focus and replaced its Project Grant with a new grant 57 Easy Access IP www.easyaccessip.org.uk/ 58 BASF to concentrate plant biotechnology activities on main markets in North and South America www.basf.com/group/pressrelease/P-12–109 59 Research in Asia heats up www.nature.com/news/research-in-asia-heats-up-1.9885 60 UK applications for Euro patents down 9% www.researchresearch.com/index.php?option=com_news&template=rr_2col&view=article&articleId=1154750 61 PharmaVentures www.pharmaventures.com/aboutus/press/news/1698 62 International Comparative Performance of the UK Research Base—2011. A report prepared for the Department of Business, Innovation and Skills. www.bis.gov.uk/assets/biscore/science/docs/i/11-p123-international-comparative-performance-uk-research-base-2011.pdf 63 Global Research Report United Kingdom. http://researchanalytics.thomsonreuters.com/grr/ cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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for PhD funding to support collaboration between industry and academia.64 Novel elements in this approach include the company taking the lead in finding academic collaborators, and PhD students taking part in a Commercial Training Programme. 14. TSB funding is often provided at a near-market level research translation and not available to support early-level research translation. Defra initiative LINK provided support for translational research in the agriculture and horticulture sectors; bringing together researchers and industry and providing early-stage funding. However this level of support has been largely unavailable since LINK halted applications and its work was incorporated into the TSB. 15. Regarding Pharma, the Wellcome Trust “Seeding Drug Discovery” initiative has been helpful in progressing early drug discovery programmes because it offers suitably large funds and allows both small companies and academics to apply. BBSRC Industrial Partnership Awards provide funding for early stage development,65 and the MRC also has some good initiatives, for example the Developmental Pathway Funding Scheme/Developmental Clinical Studies scheme (DPFS/DCS), which provides funding for small proof-of- concept clinical studies. TSB funding streams could be reviewed to provide interdisciplinary support of this type for sufficient lengths of time; reflecting that different industries move at different speeds. 16. The Wellcome Trust Technology Transfer has several commercialisation initiatives in progress based on this model; the Stevenage Bioscience Catalyst66 for instance operates as a partnership between Wellcome Trust, GlaxoSmithKline, the East of England Development Agency and the TSB, whilst Orthox67 is supported jointly by the Wellcome Trust and TSB. It will take time to see if these partnerships translate into real products, however collaborating with industry, government and charities spreads the financial risk, and has the benefit of buy-in from experts with a variety of key skills and knowledge.

What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 17. The innovation, research and growth strategies recognise the role of SMEs for job creation and wealth, and we welcome initiatives targeting support for small companies and spin-outs. The additional £75 million promised to TSBs is also welcome, as is the proportion of new funding made available for the Biomedical Catalyst Fund. The growth strategy rightly identiﬁes that infrastructure investments needed for the future do not align with amounts available from traditional sources of ﬁnances; however the Government needs to set out measures to address these challenges and how this will work with current funding streams to produce economic gain. With the Science budget effectively cut by 15%, there is a need for smart investment by government to match that of our competitors and to encourage private investors to choose UK research and development. We need to make the most of UK’s potential for growth not only in the biomedical sector, but also the high tech and agri-sectors that are not addressed in the Strategy for UK Life Sciences.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 18. Private equity investment could be encouraged through larger tax breaks and more opportunity to partner with government initiatives. However the government should also encourage longer term return expectations for life science research, and help bridge the gap in early stage funding at the pre-commercialisation stage when costs and risks are high. For early stage projects a step-wise investment based on early milestones may be helpful as it limits initial investment but then increases for investors who are progressing with the product. Funds could be made available for SMEs where job creation is high, not only to multi-nationals. Clear ethical frameworks and agreements must be in place for private investment in spin-out companies, and tax break rules should apply to research founders so they are treated as if they were employees (whilst remaining employed by the University), otherwise at each stage of investment, founder shares become diluted. 19. A successful example from Scotland is the Angel investment group in the Scottish Borders (TriCap) which have provided funding for several life sciences start-ups including MGB-Biopharma Ltd, Actual Analytics Ltd & Sphinx Biomedical Ltd. In the case of MGB over £2 million was raised through Angel investment. A key element in setting up the ventures has been the Scottish Investment Bank which provides matched funding on the same terms as private investors. There is, however, a challenge to these companies in sourcing follow-up funding. 20. A major issue is the incompatibility between the Angel investment model (based on the single class of common shares necessary for investors to take advantage of the Enterprise Investment Scheme) and the venture capital model which has complexities designed to ensure the priority of the capital investors over common shareholders (including founders). This means that the start-ups have to be set up with business plans designed to lead to trade sales or licensing deals generating follow-on ﬁnancing within the boundaries set by the original Angel investment. There are exceptions to this rule where follow-on rounds are raised by Angels but these are sometimes challenging. 64 Medical Research Scotland www.medicalresearchscotland.org.uk/funding.htm 65 BBSRC Industrial Partnership Awards. www.bbsrc.ac.uk/business/collaborative-research/industrial-partnership-awards.aspx 66 Stevenage Bioscience Catalyst www.stevenagecatalyst.com/ 67 Orthox www.orthox.co.uk/ cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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What other types of investment or support should the Government develop? 21. The Government should not lose sight of the importance of basic research and allow for creativity that fuels innovation. Research in the fundamental or basic sciences, whilst not necessarily leading to commercially viable products in a linear fashion, are vital. This research is crucial for production of knowledge that may subsequently be fundamental to the future development of commercial products, and ensures that the UK maintains absorptive capacity relating to research from other countries. It also has use in terms of creating skilled graduates and post-graduates, as well as new scientiﬁc methodologies and instrumentation, all of which are key components of the process of innovation. A reduction in funding of basic research across all UK institutions will simply precede the loss of future commercialisation opportunities. With real-term cuts in the Science budget, we look to Government to not only recognise that innovation is the key to growth, but to invest strategically and with enough capital to ensure the UK is at least matched with, if not ahead of, our competitors. 22. The Government should support industry placements and secondments for early career researchers and students so that they have suitable industry experience.68 The Society of Biology has developed a Degree Accreditation Programme to recognise academic excellence in the biosciences, strongly emphasising research experience and critically, time spent in an active research environment.69 Industry experience is valued across the biosciences, but particularly where the UK is in danger of losing skills where we have excelled; skills in medicinal chemistry, in vivo pharmacology, plant sciences and agriculture-based skills. Government should engage in discussions with Learned Societies and their members about what actions they are taking to conserve these skills. In addition, talented international students with the potential to support commercialisation and growth should be supported and not hindered by immigration policy. 23. There is a disparity between the commercialisation of research in South East England compared to the rest of the UK.70 SE institutions have better additional knowledge infrastructure and industry involvement, making them more competitive. Figures show that for spending on research programmes also varies widely across the UK. In 2010–11 for example London and the South East secured £748 million and the North East just £94 million.71 These regional differences should be addressed, and networks built to improve knowledge sharing and to learn from existing models of successful translational research. February 2012

Member Organisations of the Society of Biology Full Members Agriculture and Horticulture Development Board Royal Entomological Society Anatomical Society Royal Microscopical Society Association for the Study of Animal Behaviour Science and Plants for Schools Association of Applied Biologists Scottish Association for Marine Science Biochemical Society Society for Applied Microbiology Biosciences KTN Society for Endocrinology Breakspear Hospital Society of Environmental Medicine British Andrology Society Society for Experimental Biology British Association for Lung Research Society for General Microbiology British Association for Psychopharmacology Society for Reproduction and Fertility British Crop Production Council Society for the Study of Human Biology British Ecological Society SCI Horticulture Group British Lichen Society Tropical Agriculture Association British Microcirculation Society UK Environmental Mutagen Society British Mycological Society UK-BRC—Brassica Research Community British Neuroscience Association UK-SOL—Solanacea Research Community British Pharmacological Society University Bioscience Managers’ Association British Physcological Society VEGIN—Vegetable Genetic Improvement British Society for Ecological Medicine Network British Society for Immunology Zoological Society of London British Society for Matrix Biology British Society for Medical Mycology British Society for Neuroendocrinology Supporting Members British Society for Parasitology Association of the British Pharmaceutical British Society of Plant Breeders Industry (ABPI) British Society for Plant Pathology Association of Medical Research Charities 68 All together now: Improving cross-sector collaboration in the UK biomedical industry. NESTA Report March 2011 http://www.nesta.org.uk/publications/reports/assets/features/all_together_now 69 Society of Biology Degree Accreditation http://www.societyofbiology.org/education/hei/accreditation 70 Higher Education Institution Knowledge and its Impact on Regional Competitiveness. ESRC Report http://www.esrc.ac.uk/my-esrc/grants/RES-171–25–0023-A/read/reports 71 Science: Finance Written Ministerial Answers http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120123/text/120123w0004.htm#12012339000022 cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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British Society for Proteome Research AstraZeneca British Society for Research on Ageing BASIS Registration Ltd. British Society for Soil Science Bayer British Society of Animal Science BioIndustry Association British Toxicology Society BioScientiﬁca Ltd Experimental Psychology Society Biotechnology and Biological Sciences Research Fisheries Society of the British Isles Council (BBSRC) GARNet BlueGnome Ltd Gatsby Plants Forest Products Research Institute Genetics Society GlaxoSmithKline Heads of University Biological Sciences Huntingdon Life Sciences Heads of University Centres of Biomedical Science Institute of Physics Institute of Animal Technology Lifescan (Johnson and Johnson) Scotland Ltd Institute of Horticulture Medical Research Council (MRC) International Biometric Society Oxford University Press Laboratory Animal Science Association Pﬁzer UK Linnean Society of London Royal Botanical Gardens Kew Marine Biological Association Royal Society for Public Health MONOGRAM—Cereal and Grasses Research Community The British Library Nutrition Society Unilever UK Ltd The Physiological Society Wellcome Trust The Rosaceae Network Wiley Blackwell

Written evidence submitted by Plant Bioscience Limited Plant Bioscience Limited is an established, for-proﬁt, technology transfer company formed to bring about the protection, development and commercialisation of innovations emerging from public research laboratories, for ultimate public use and beneﬁt. PBL was incorporated in 1995 by The John Innes Centre and The Gatsby Charitable Foundation. It is now owned in equal parts by The John Innes Centre, The Sainsbury Laboratory and The Biotechnology and Biological Sciences Research Council (BBSRC) who became a shareholder in 2004. PBL operates on a fully contingent basis—that is to say PBL invests funds and resources in patent protection and, in some cases, technical development of emerging innovations, and generates income streams primarily by marketing and licensing, to industry, the corresponding intellectual property rights, and very occasionally by forming new companies. The revenues PBL receives from successful commercialisation are shared with the source public research organisations, on a technology-by-technology basis. PBL is specialised in the biological life sciences, and in particular, though not exclusively, in the plant and agricultural sciences. The company has an active portfolio of technology prospects, sourced from its shareholder organisations, and also from Universities and research institutes not just in the UK, but around the world (eg Spain, USA, Argentina etc). As day-to-day practitioners in the business of commercialisation of academic research we welcome the Science and Technology Committee’s present inquiry.

1. What are the difﬁculties of funding the commercialisation of research, and how can they be overcome? Flexible, accessible, relatively low-level, early stage development funds There is a critical lack of ﬂexible, rapidly accessible funds to develop innovations to the level that intellectual property positions are well established and that industry can take on the use and/or development of the innovation. A few schemes such as BBSRC Follow-on Fund are helpful, but since the DTI/BIS Public Sector Research Exploitation Fund scheme expired we have seen a big gap open up. Generally speaking, the typical level of required funding on a per-project basis is relatively small (eg less than £50,000). This funding needs to be on the “public side” (unlike TSB which requires company participation) so that progress can be made with what are inevitably extremely immature innovations, before committing them to private sector. Premature engagement with industry partners is not the best route to ensuring ultimate success in technology transfer— IP positions are weak, become comingled, and the selected industry partners may not have the ongoing resources, capability or commitment to achieve broadest exploitation.

Research Intensive PSREs outside University system Universities still receive support for innovation and technology transfer activities under HEIF, but Public Sector Research Establishments (such as Research Council sponsored Institutes) do not (since the demise of the BIS PSRE Fund Scheme). The UK Universities’ support for innovation under HEIF is annual, and formula based. In which respect it is (at least for the moment) both “permanent and predictable” which was one of the main recommendations of the 2003 Lambert Review of Business University Collaboration. However there is a signiﬁcant sector of UK’s strategic research conducted in institutions outside the University system and where funding both for commercialisation capacity/resources and for case-by-case technology development is anything but “permanent and predictable”. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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UK Public Research—Basic vs Applied For many very good reasons, UK public science funding and academic research career development is designed to encourage and fund the highest quality science. Indeed, as technology transfer practitioners, we would prefer to see world-class, outstanding scientific breakthroughs than a lot of incorrect second guessing of what industry and/or end-users actually do or don’t require. In any case, by the time public research has come up with a potential solution for a particular industry need, the world has often moved on. But in the drive for scientific excellence, the capacity within the public research sector to take basic discoveries forward (even a few steps) has been eroded over the past few decades. Initiatives such as Technology and Innovation Centres (TICs) (about which see later comment under Q4) may fix some of this need in the future, but we believe big gaps will remain. This point is not so much about “funding commercialisation of research” as where to carry out the necessary early stage development to the point that innovations can be adopted by industry or other developers/users. We find it often quite challenging to find public sector researchers interested and able to conduct some of the applied proof of concept work that is needed even if funding can be found.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? Bioscience development timescales are typically long term. Public research innovations are generally very early/immature “discoveries”. As mentioned in Q1 above, academic research, and the way that UK academic research is funded, and to some extent (still!) the academic research culture, is not oriented to taking their innovations much beyond the discovery stage. Big industry generally won’t take on early technology and dealing with smaller companies is fraught with non-technical risk. Moreover in biosciences, with the long timelines for development and commercialisation (and regulatory) steps, patent protection is essential to justify investment, but patent life (20years) is short relative to these timelines. Academic discoveries need to be adopted by industry within the first one to four years of first filing patents, or there maybe be too little patent life left, which puts enormous pressure to get undercooked innovations into industry, or otherwise invested in. Additionally, within this one to four year period is the stage in patent prosecution (30 months after first filing a patent) when it is necessary to elect each country (worldwide) where the patent should be applied—at which stage there is a very significant cost of attorney fees, filing charges and translation costs (tens of £ thousands). Many public sector research organisations abandon most or all patent territories at this stage, unless the technologies already partnered or licensed. Could the PCT system (Patent Cooperation Treaty) be persuaded to defer the national phase entry date to, say, five years after priority filings, instead of 30 months? Also to extend patent life to longer than 20 years from priority filing for products requiring the long development/deregulation tracks such as in the biosciences.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? Plenty of examples in the biosciences. Technology transfer has to be blind to national boundaries if UK innovations are to succeed in finding suitable industry partners. Agribusiness is international in any case, and UK is a relatively minor market with weak/no capacity within farming and food industry to import and develop early academic research discoveries. The lack of public sector plant-breeding (even just to create preliminary breeding “foundation” material, not finished crop varieties) means that a large amount of UK research output in terms of knowledge created on plant/crop genetic goes unexploited. If public sector could actually create the breeding materials that seed breeders could then work with, a significant gap could be plugged. A rare (arguably, accidental) example of success in this sense is the recently released Beneforte broccoli.72 For technology-intensive innovations such as agrochemicals, and GM crops the only feasible commercialisation partners (with sufficient scale and competence) are non-UK based.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? Don’t know/too early. Our view is that TSB funding schemes rarely coincide with the actual needs on the day-to-day basis. Academic research innovations do not happen “to order” and valuable opportunities are missed as no appropriate funding calls are open at the right time. Moreover TSB funds are slow to obtain and involve far too much bureaucracy. Smaller, flexible, responsive funds are desperately needed. Under the DTI/ BIS PSRE Explotation fund programme, we were able to obtain funds which we could expend ourselves, reactively and flexibly, on a wide range of different development projects. The results of were reduced-risk technology and stronger IPR and led to a dramatic increase in the success rate of industry uptake, a big efficiency in the use of funds (because funds were under our own control, expensed with minimum overheads), and—crucially- a shortening of timescales. Too early to comment on the Technology Innovation Centre initiatives but our view is that these would likely be a too static, hard-wired approach although they may be of some benefit for certain technology/industry sectors. Public sector innovations are generally very diverse, somewhat unanticipated, with applications in 72 www.ifr.ac.uk/info/news-and-events/NewsReleases/111004broccolilaunch.html cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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unexpected fields distant from the field of origin, and hence require a flexible, tailored and hands-on incubation and development approach.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? Unknown.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? If it does, then realistic expectations for investment return need to be established with the investment sector. Successive dilution of founders’ position is unsustainable for long-term incentivisation of public sector innovators to use this route to develop and commercialise their innovations. Just as importantly, the difficulties of achieving “exit” need to be addressed before pumping more into starting new ventures in the technology- intensive sectors—there is insufficient critical mass in the market to allow liquidity. Previous seed fund schemes (University Challenge etc) had capped funding (£250k), and led to undercapitalised ventures starting too soon, resulting in, at best, debilitating trickle funding. There is need for access to funds able to inject £2 million–10 million at start-up. This might lead to fewer ventures being started but might give them a better chance of crating further value and successfully attracting next stage funding at reasonable valuation. The “jobs and regional economy” agenda: In our opinion, there is too much expectation from stakeholders, government etc to use public sector innovations to form start-ups around new technology. Early stage academic sourced technology is almost always very high-risk already, without compounding that with risk of finding the right management/staff and funding of the right amount on the right terms. Not to say start-up route is never the right way forward, but rather it is the rarer exception and licensing is a more suitable route, more of the time.

7. What other types of investment or support should the Government develop? As mentioned, the principal gap we see is the very early stage no-strings funding for value-adding technology development, not necessarily much per individual project, to establish IPR and technical proof of concept independently of (premature) commitment to private sector (whether industry or equity investors). Preferably these funds should actually be in the hands of the technology transfer practitioners, such as the DTI/BIS PSRE funding scheme used to accommodate. A fund dedicated for private investment into speciﬁc projects to invest in development of early stage innovations having licensing as the explicit outcome—a different model for private investment into early stage public sector technology—to represent an alternative to traditional model of investment into equity vehicles (start-up companies etc). Based on loan and revenue sharing mechanism, for example.

Useful Actions Longer than 20 year patent term under PCT (Patent Cooperation Treaty) and/or defer national phase entry to anytime up to ﬁve years from priority ﬁling. February 2012

Written evidence submitted by Action on Hearing Loss About Us Action on Hearing Loss is the new name for RNID. We are the UK’s largest membership charity supporting people who are deaf or hard of hearing. We’re experts in providing support for people with hearing loss and tinnitus and provide day-to-day care for people who are deaf and have additional needs. We supply communication services and training whilst offering practical advice to help people protect their hearing. We campaign to change public policy around hearing loss issues and support research into an eventual cure for hearing loss and tinnitus.

Introduction 1. Hearing loss is a major public health issue affecting over 10 million people in the UK—one in six of the population. As our population ages this number is set to grow and by 2031 there will be more than 14.5 million people with hearing loss in the UK. It is estimated that 10% of the population suffer from tinnitus. Hearing loss has high social costs and can lead to early departure from the workforce, isolation from social networks and an increased risk of depression and dementia. Hearing loss is also a signiﬁcant economic burden; the cost of unemployment in the UK because of unaided hearing loss is estimated to be £13.5 billion and the market for hearing aids is estimated to be worth US$3.2 billion globally.73, 74 73 Hear-it AISBL (2006) Evaluation of social and economic costs of hearing impairment. 74 Goldman Sachs (2007) Hearing aids: sounding out industry growth. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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2. At present there is no way to halt the progressive loss of hearing associated with age, nor treatments to lessen the damaging effects of noise. There is no way to restore natural hearing or silence tinnitus. For people with some residual hearing, amplification of sound via hearing aids or cochlear implants can be of benefit, but 97% of our members still experience difficulty hearing when using these.75 3. To respond to this urgent need, Action on Hearing Loss funds world-class biomedical research and training for scientists, and promotes hearing loss to the pharmaceutical and biotech industries and private investors as a commercially attractive area in which to invest. As a result, we have been responsible for major scientific discoveries, such as identifying biological pathways that can be targeted in preclinical models to prevent noise- induced hearing loss, and have positioned hearing loss as a tractable market for industry. For example, we recently helped Autifony, a new start-up focussed on developing drugs for hearing problems that target ion channels, to secure £10 million worth of venture funding and to form research collaborations with leading UK academic groups. 4. Despite this progress the development of biomedical cures and therapies for hearing loss and tinnitus is being held back by a significant underinvestment in hearing research and a lack of translational research. We warmly welcome the inquiry into bridging the “valley of death”. We identified this problem in 2010 and this has led to the creation of the Translational Research Initiative for Hearing (TRIH), which supports translational research with a new funding scheme and by facilitating investment partnerships. This is an excellent example of best practice.

Summary 5. We would like to see: — A change to the current reward system so that academic researchers and institutions are not penalised for pursuing translational research. — Incentives put in place to encourage investment in therapeutic areas (eg hearing loss) that have not traditionally been a focus of commercial activity. — A greater involvement of the voluntary sector in the commercialisation of research. — The Government follow through on its commitment to streamline the regulation of clinical research.

What are the difﬁculties of funding the commercialisation of research, and how can they be overcome? 6. In the area of hearing research rapid progress is being made towards understanding the biological causes of hearing loss and developing strategies to both protect and restore hearing and silence tinnitus, but a lack of translational research is stalling the development and commercialisation of new treatments leading to lost opportunities to improve quality of life and generate wealth. 7. The commercialisation of research involves many stakeholders with different drivers, facing very different challenges. This makes it difﬁcult to develop innovative ideas emerging from basic curiosity-driven research into potential new treatments, able to attract the commercial investment needed to bring them to market.

Academic Institutions 8. Academic research institutes are driven by the need to produce high quality and high impact research publications to compete for public and charitable funding. Research is also led by individual investigators driven by their own personal interests. This system serves basic research well and succeeds in generating innovative ideas and increasing our knowledge base. However, it tends not to support or encourage the type of research needed to translate the outcomes of basic research into potential treatments. 9. This type of research—translational research—tends not to generate high quality publications and is often not intellectually appealing to many academic investigators. This can deter individual investigators and academic institutes from investing their time and resources in translational research, making it difﬁcult to develop a potential new treatment to a point where it can be taken forward by the commercial sector.

Commercial sector 10. Pharmaceutical and biotechnology companies are driven by the need to generate a profit for their shareholders and investors, so will only invest in research that has a good chance of leading to a profitable product. Many potential treatments will fail during preclinical development with only 1 in 50 drugs actually reaching clinical trials.76 Given this high rate of attrition it is not surprising that the commercial sector is becoming more reluctant to invest in translational research and demands strong evidence that a treatment is likely to be successful before investing—ideally, having reached phase II clinical trials. This has created a funding gap that is stalling the development of new treatments. Furthermore, the pharmaceutical sector prefers to invest in familiar tried and tested therapeutic areas as this eases the passage of a potential new medicine 75 Action on Hearing Loss (2010) Annual Survey of Members. 76 PhRMA (2009) Pharmaceutical Profile. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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through the regulatory pathway to market; lack of experience in hearing loss as a therapeutic area thus presents another speciﬁc barrier to developing treatments for this condition.

Overcoming the difficulties of commercialising research 11. A number of funders (eg MRC and Wellcome Trust) have established funding schemes to support translational research and last year as part of our Translational Research Initiative for Hearing (TRIH) we launched our own translational research funding scheme dedicated to hearing loss. But these incentives are not enough on their own; there also needs to be a culture change within the academic research community, so that our very best investigators want to pursue translational research and are rewarded for doing so. The Government needs to publicly recognise and showcase the work of translational research leaders to provide a clear incentive for others to pursue work in this area. We also recommend that changes are made to the current reward system so that institutes and the careers of investigators working on translational research projects are not penalised for doing so. Greater weight should be placed on patents filed, industrial partnerships formed and commercialisation activities when assessing the impact of an institute or individual. 12. To encourage commercial investment in translational research we need innovative ways that companies can share the risks outlined above. Action on Hearing Loss’s Translational Research Initiative for Hearing (TRIH) is an example of how the voluntary sector can help to dilute the risk which can deter potential investors. TRIH was set up to accelerate the development of therapeutics in hearing loss and tinnitus by bringing academics, industry, investors and patients together. It provides a platform from which industry can easily identify the most promising lines of research to invest in and the best research groups to work with. Through these partnerships academic groups benefit from the industrial partner’s focus and experience of commercialising research.77 13. Companies need further incentives to encourage the investment that is needed in translational research; such incentives could take the form of tax breaks for research and development activities such as those recently announced by the Chancellor78 and access to funding schemes designed specifically to support translational research such as the recently announced Biomedical Catalyst Fund. 14. Access to specialised equipment and expertise can often be costly, making it difficult for small companies lacking in-house capabilities to commercialise research. We welcome the Government’s plans to establish innovation centres (Catapult centres) that will give businesses access to generic technologies, but it is vital that centres focussed on the life sciences are prioritised. 15. Finally, the voluntary sector plays a significant role in funding medical research in the UK, investing £1.2 million in medical research in 2010–11.79 In common with the commercial sector, medical research charities make investment decisions based on their vision to see new treatments brought to market, but unlike the commercial sector are not driven by the need to return a profit. This allows research charities to play a unique and important role in supporting the earlier more high-risk stages of the commercialisation process. Charities are also in a strong position to identify areas where there is a high level of clinical need. We would welcome clarification from the Government as to whether the voluntary sector will have a role to play in the distribution of the Biomedical Catalyst Fund, announced as part of the Government’s Strategy for UK Life Sciences.

Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 16. It is particularly difficult to commercialise research in areas were research capacity is limited. Hearing loss is one such case. It has not traditionally been recognised as a major public health issue, despite being the third most common chronic condition in older people after arthritis and high blood pressure. Significant steps have been taken over the last few years to bring hearing loss onto the mainstream public health agenda, but hearing research still attracts a disproportionately low amount of funding in relation to the level of clinical need. 17. In 2007–08, less than 1% of the collective spend on research by the Medical Research Council, Biotechnology and Biological Sciences Research Council and the UK’s medical research charities was directed at hearing research, despite hearing loss affecting more than one in six of the population. That is equivalent to only £1.34 spent on hearing research for every person with hearing loss. This figure compares with £14.21 spend on vision research and £21.31 spent on diabetes for every person affected, both also long-term conditions.80 18. Most hearing research is supported through competitive responsive-mode programmes. Competition for this funding is high and with a relatively small number of hearing researchers competing against larger numbers of scientists working in high-profile areas such as cancer, cardiovascular disease and neurological conditions, hearing research attracts a disproportionately low amount of funding relative to the scale of the problem. This limits the field’s ability to commercialise research. 77 Please see www.trih.org/download/TRIH_Brochure.pdf for further information about TRIH. 78 HM Treasury (2011) Autumn Statement. 79 Association of Medical Research Charities (2011) Annual Review. 80 Action on Hearing Loss (2010) Analysis of Medical Research Funding into Hearing Loss in the UK. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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19. We are calling for the Government to take urgent action now to build hearing research capacity to bring research spending in line with the current and projected size and impact of hearing loss. 20. Action on Hearing Loss offers a range of funding schemes to help build research capacity. Our summer studentship grant and our PhD studentship schemes aim to encourage the best students to become involved in hearing, deafness and tinnitus research in the UK and our TRIH Funding Scheme offers researchers an alternative means of obtaining funding to kick start proposals with high commercial potential. 21. Companies are often deterred from investing in areas where there is no existing therapeutic on the market. A lack of market intelligence, understanding of patient needs and uncertainties around what would be needed to gain approval to market a treatment and how that treatment would be adopted by healthcare providers all deter investment. With a large membership base, the capacity to build market intelligence and links to key stakeholders in the field of hearing loss, Action on Hearing Loss is in a unique position to be able to provide expert advice to commercial investors and reduce these risks. We are able to articulate the needs of our beneficiaries, highlight the commercial opportunities that exist for hearing and tinnitus therapeutics through our acclaimed series of market research reports and by participating in trade conferences. We also provide market intelligence to companies and investors and links to key opinion leaders, to help them better understand the hearing market and how their technology could be developed to address clinical need. Our example demonstrates how medical research charities with their unique market insight can play an important role in helping to commercialise research in areas that have not traditionally been a focus of commercial activity. 22. We would therefore like to see: (a) Support to better enable voluntary organisations to share valuable market data and patient need with companies. (b) Areas lacking research capacity but with large unmet clinical need to be prioritised in government initiatives to support translational research. (c) Incentives for companies developing therapeutics for new indications. These could follow those currently given to companies under the US FDA Orphan Drug Act (1983) under which companies developing drugs for rare conditions benefit from extended patent life, tax incentives, research design support and regulatory fee waivers.

Case Study Developing medicines for middle ear disorders The first research team to benefit from our innovative Translational Research Initiative for Hearing (TRIH) is led by Professor Allen Ryan at the University of California, San Diego who are developing a new approach to treating middle ear conditions, such as glue ear in children. Middle ear infections are extremely common in children, with 90% experiencing an infection by the age of two years. This can often lead to glue ear caused by chronic inflammation and a build-up of fluid in the middle ear. It causes pain and discomfort and, in some cases, damage to hearing. Infections are treated with oral antibiotics and glue ear by surgically fitting grommets (small ventilation tubes) in the ear drum. But it is unclear how effective these approaches are. What is needed is a safe and effective way of delivering medication to the middle ear without the need for young children to undergo surgery. Professor Ryan’s group have discovered a series of small peptides that are actively transported across the ear drum and believe that they could be used to “carry” medication into the middle ear. This would revolutionise the treatment of middle ear conditions. We are funding a three year project to optimise the structure of the peptides to maximise the rate at which they cross the ear drum and to generate evidence to show that the peptides can indeed carry drugs across the ear drum. The research we will fund will de-risk and add value to their technology making it more commercially attractive to future investors.

What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 23. Action on Hearing Loss funds £1 million of hearing research each year but a lack of research capacity in the UK means that we are often forced to make investments outside the UK. For the period 2009–10 to 2011–12, 44% of our research budget has been spent overseas. Only around 10% of funding proposals submitted to the Translational Research Initiative for Hearing’s Funding Scheme were from UK research groups and the ﬁrst project to be supported by this initiative will be conducted at the University of California. 24. Hearing research that does take place in the UK can be undermined by an overly complex regulatory and governance environment. An Action on Hearing Loss-funded project, investigating genetic predisposition to hearing loss caused by a speciﬁc class of antibiotic often used to treat life threatening infections in premature babies, has been held up for over two years due to the complicated bureaucracy involved in conducting clinical research at multiple sites in the UK and the lack of support to help researchers navigate the regulatory process. It is essential that the new Health Research Regulatory Agency announced in last year’s budget delivers on its objective to streamline the regulation of clinical research. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

25. In the field of hearing research the Government and Technology Strategy Board (TSB) initiatives to date have made very little impact on the commercialisation of research. This is in part due to the fact that the TSB is tasked with supporting business-led innovation across a broad range of technology sectors and yet initiatives tend to be very focussed on a particular challenge or opportunity. This limits the opportunities for companies working in very specific areas from fully benefiting from the work of the TSB. For example, of the Innovation Centres planned, only one (Cell Therapy Catapult) will support the development of new medical treatments.

26. We recommend that the TSB works more closely with the voluntary sector to identify neglected areas of clinical need and shape future priorities accordingly.

What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

27. The measures announced in the Government’s Strategy for UK Life Sciences to provide ﬁnancial incentives to encourage the commercialisation of research, to make it easier for patients to get involved in clinical research, to make NHS data more accessible for research purposes and to streamline regulation will all go a long way to improving the commercialisation of research.

28. In particular, the £180 million committed to a Biomedical Catalyst Fund to support translational research is welcomed, but it will be important to work with all stakeholders including medical research charities to ensure that these funds are targeted to where the need and opportunities are greatest.

29. The formation of an independent Life Science Advisory Board made up of representatives from industry, academia, NHS, Medical Research Council, Technology Strategy Board, National Institute for Health Research and Government departments is welcomed, but as a major funder of medical research it is important that the voluntary sector is also represented on this board.

30. As part of our TRIH initiative we developed a web-based clinical trials database to make it easier for patients to identify clinical trials they may like to take part in. The UK Clinical Trials Gateway planned to be re-launched in March by the NIHR will be a great resource, making it easier to recruit patients to clinical trials and engage patients with the research process.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved?

31. We strongly support the encouragement of more private equity investment into the life sciences sector, but as the development of medical treatments can take many years it must also be balanced with more long- term ﬁnancing.

32. We believe that there is a role for the Government to incentivise private equity investors to invest in emerging or neglected areas of research. A central privately-backed fund could be created, from which all investors would be rewarded for any returns. This would help minimise the risk of investing in less well- established ﬁelds of research and would help to ensure a more consistent stream of funding for researchers. Charities are well placed to help assess disease burden and we would therefore expect the third sector to play a role in the distribution of any such funding.

What other types of investment or support should the Government develop?

33. It is vital that the Government provides investment and support for voluntary organisations which fund £1.2 million of medical research annually and are in a unique position to help bridge the “valley of death”. In particular, it is essential that the Government maintains its support of the Charity Research Support Fund provided to universities through the Higher Education Funding Council to England (HEFCE) to cover non- direct costs associated with conducting charity-supported research.

34. TRIH is an example of a successful voluntary sector initiative which helps to reduce the risk of investments and supports the development of new treatments. Initiatives such as this would beneﬁt from Government support in the form of direct grants or co-funding through existing Government-funded translational research programmes. February 2012 cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Written evidence submitted by Imperial Innovations Group plc Imperial Innovations Group was originally founded by Imperial College London to address the “valley of death” and to enable the successful exploitation of university science. It established a track record with Imperial College spin outs including a number of successful exits. In January 2011 it successfully raised £140 million to expand its remit to focus on building and investing in technology and healthcare companies emanating from or leveraging the science base of four universities: Cambridge, Oxford, University College London and Imperial College London. The fund raising was also in response to a change in strategy with the Imperial College portfolio to build selectively a number of bigger companies rather than exiting them. Two companies: Nexeon (developing lithium ion battery technology for improving storage capacity) and Circassia (developing a range of allergy vaccines) have taken a major step forward since then: Nexeon raised £40 million and Circassia raised £60 million both funding rounds led by Innovations. Both these companies have things in common: outstanding experienced commercial and technical management teams, a substantial market opportunity, market validation and a world class technology emanating from UK science. There are a number of aspects of the Innovations model that are important: 1. The public company “evergreen” structure provides for a longer term outlook than is possible in a conventional close end fund and an approach that is focused on building valuable companies not exit timescales. 2. The support of long-term shareholders (Invesco and Lansdowne) who are prepared to support the Group for a long time. 3. The combination of technical and commercial experience: we believe in matching world class scientists with similarly experienced management without compromise. 4. Funding companies efficiently until the technology is appropriately de-risked but thereafter funding them sufficiently and helping them to grow and become sustainable. Our key contention is that good ideas and intellectual property need intelligent capital, and enough of it. This then attracts in good management whose aspirations are to build companies rather than being focused on exit. As an investor our approach is to work with management teams and scientists to build and optimise value—this is a long term process and the shorter cycles associated with venture funds do not work in the early stage technology sector. We have commented more specifically on the questions below:

1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 1.1 Timescale: research emanating from Universities is typically still very early in terms of proof of concept and requires a long time to become market ready and then commercially successful. Cutting this timeline would make the early commercialisation companies (Healthcare or Technology/Engineering) more attractive to fund. Additional funding (eg that similar to the National Institute of Health in the USA) that took projects through early stages of translation would be one way—spin outs would then be more rounded when they emerged and further down the track. Another way is to reduce the timelines by reducing the regulatory burden in the case of healthcare or the product development timelines in engineering/technology (eg aerospace and defence). If the UK adopted a fast track process for approving drugs, and used the NHS (a major resource) to achieve this then the UK would become more attractive to drug companies as a location to carry out Research and Development. 1.2 The recent three life science policy papers are attempting to address this timeline issue and if the recommendations are implemented properly they will have an impact. The policies seem to address the issues well. Adopting a sector based approach to think through how to speed up the process of commercialisation should yield results. 1.3 Funding: there are not many funds that are focused on capital-intensive companies. Most money is looking for more rapid turnover internet and software businesses. We need to increase the supply of patient capital (long-term investment) for companies based around UK research and find ways of attracting in long- term institutional finance. 1.4 Entrepreneurs CGT relief should be extended to a broader group of entrepreneurs not just those that have founder shares. If you are a founder or a manager involved early then there should not be limits in order to get 10% CGT; in healthcare companies amounts held often fall below the 5% threshold so individuals take great risk but do not get this benefit even though they are fulfilling that founding role. 1.5 The patent box initiative is interesting and more lateral approaches to not only creating the IP in the UK but keeping it here should be considered. 1.6 Finally the biggest factor in terms of success is the ability of early stage companies to attract in top quality management. In the UK we do have a growing pool of talented people willing to work in technology and healthcare start ups: for example Steve Harris (CEO of Circassia) and Scott Brown (CEO of Nexeon). It is difficult to attract such management into companies unless they are backed by deep pocketed long-term investors and there is sufficient funding at the early stage of the value chain. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 2.1 Technology is harder to invest in than life sciences. The eco system is less well defined. In life sciences, partnerships and acquisitions are common and there is a well understood process to an exit. Most big pharmaceutical and healthcare products businesses (eg medical devices) have a business development function which is responsible for sourcing in new products. Technology (excluding internet and social media) covers a broad range of industry sectors that tend to be much more conservative and more used to partnering with other big partners. For example spin out company Evo Electric recently took an investment and formed a joint venture with GKN to make electric motors—it was the first time GKN had partnered with a small start up in this way. 2.2 Encouraging chemical, oil and gas, automotive and power companies to partner and be more innovative about the way they work with small companies would be helpful. They need to move away from the “own and control” approach to allowing start ups to work with them and tap into their knowledge, product expertise and market reach without making them unattractive to investors.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 3.1 There are some speciﬁc areas where other countries have chosen to prioritise and provide attractive packages therefore enticing companies to move. For example, Texas is providing signiﬁcant regional funding to build a hub alongside world class research centres in cell therapy for treatment of transplant rejection and cancer. The ancillary upside also includes access to the US market and possibly Nasdaq. 3.2 Companies may also be sold to large non UK entities too early due to the lack of patient capital. Both Biovex and Cyclacel moved to the US to seek access to larger funding.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 4.1 It is too early to assess the impact. However, within our company portfolio we have many examples where the TSB programs have been a great catalyst and shared risk method of facilitating small growing companies to collaborate on commercialisation with larger companies without having to give up early rights. The themed approach focusing on key sectors also appears to be targeting the creation of these large company/ SME collaborations which should accelerate commercialisation.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 5.1 More needs to be done. There is recognition of the key problems but speciﬁc initiatives announced need to be clearly implemented with minimal bureaucracy. For example making the UK the best place to conduct drug development—we have the ingredients. The announcements relating to the TSB, Bioscience investment and NHS Innovation are welcome.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 6.1 Taxation policy may be an effective way of increasing patient (long-term investment) capital. There are an increasing number of better defined taxation schemes that support early stage investing but these seem to preclude entities that have a broader remit than investment. Tax benefits should be extended to investments in funds or public company entities that are targeted at early-stage business building and investment with longer timescales and perhaps broader mandates as is the case with Imperial Innovations Group plc. Such broader investment mandates enable a longer term view to be taken with a close interaction between investor and management thereby attracting in high quality management teams who know they will get long-term financial support and can therefore concentrate on running and growing a business. 6.2 Successes will encourage more investment. More could be done to raise the profile of emerging companies in the sector: for example the CEOs of the top 50 companies in life science SMEs could be brought together and specific help provided. In sectors outside life sciences there are very few investors and track records for many VCs in engineering/technology (outside the internet space) is poor. Methods of getting large established but conservative companies to work closely with these small growing businesses need to be explored—perhaps tax incentives to invest or provide development funding. This has two benefits: it brings a customer in contact with a technology earlier and provides access for the young company to industrial expertise and customers.

7. What other types of investment or support should the Government develop? 7.1 Funding is required at all points of the commercialisation process from the more research council like funding to support translational research to ﬁnance for companies to scale. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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7.2 A pro-active approach to identifying a small group of companies that have the potential to become medium sized technology/life science sustainable companies might be a start point. The CEOs of those companies will be facing many challenges and specific help should be given to overcome these and incentivise maximisation of value to the UK. 7.3 The four top Universities in the UK (Cambridge, Oxford, UCL and Imperial) are particularly strong in translational medicine—promoting funding and support for projects that incorporate research and clinical inputs alongside each other would potentially reduce timelines to market. Continuing to support these world class Universities by significant translational funding not only in medicine but in areas like energy efficiency and materials would help to maximise the value capture from the research base.

Declaration of Interest Innovations Innovations Group plc. creates, builds and invests in pioneering technologies addressing global problems in healthcare, energy, engineering and the environment. It combines deep understanding of science and technology with commercial acumen and strong investment expertise. In December 2010 Innovations raised £140 million to accelerate the making of, and increase the size of, investments in companies established under its existing intellectual property pipeline agreement with Imperial College London. The funds raised were also to broaden its investment scope. The Group now invests in in companies based on technology from or associated with the Universities of Cambridge, Oxford, University College London and Imperial College London. January 2012

APPENDIX 1 Circassia (Case Study) Circassia is a specialty biopharmaceutical company focused on developing world class immunotherapies for some of the world’s most common allergies.

Technology Circassia is developing a range of allergy T-cell vaccines based on its proprietary ToleroMune® technology, which uses allergen epitopes to generate regulatory T-cells to suppress allergic immune responses. Circassia’s most advanced product is designed to treat patients with cat allergies. The product has achieved phase II clinical validation and studies have identiﬁed the optimal dosing regimes for the ﬁnal stage of clinical testing. Results announced in June 2011 showed that the product’s effect was maintained one year later for patients treated with four doses over 12 weeks. Circassia has further clinical trials ongoing for a number of treatments including for grass, house dust mite and ragweed allergies. In September 2011, the company announced positive phase II trial results for its ToleroMune hayfever vaccine, which reduced allergic symptoms in patients’ eyes by 30% more than placebo, and in patients’ early and late skin reactions by 54%and 19% above placebo respectively. Circassia is also developing PAP-1, a novel treatment for Psoriasis and atopic dermatitis.

Market Peak product sales for Circassia’s four lead products has been estimated at $2.5 billion per year by external consultants LEK. This has been corroborated by further research by Kantar Health, which estimates that the US market for Circassia’s cat product alone is over $0.6 billion. The global market for allergy treatments is currently underserved, despite large numbers of sufferers: estimates suggest that allergies affect a quarter of the population in the US and Europe, with that ﬁgure growing every year.

Investment History Innovations holds a 18.4% stake in Circassia at an aggregate cost of £14 million. Circassia has completed four successful funding rounds with a syndicate of high quality institutional investors and venture capital ﬁrms, including Invesco Perpetual alongside Imperial Innovations. Circassia has raised a total of £93 million to date.

Management Team Steve Harris, Chief Executive Ofﬁcer Steve was a founder member of the management team at Zeneus Pharma, and was CEO at the time Zeneus was acquired for $390 million by US biotech ﬁrm Cephalon in 2006.

Sir Richard Sykes, Chairman Sir Richard has more than 30 years’ experience in the biotechnology and pharmaceutical industries, and was Chief Executive and Chairman of GlaxoWellcome from 1995 to 2000 and Chairman of GlaxoSmithKline until 2002. Between 2000 and 2008, he was Rector of Imperial College London, and is currently Chairman of the Royal Institution of Great Britain. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Charles Swingland, Deputy Chairman Charles has more than 30 years’ corporate legal experience, having worked for 15 years as a corporate lawyer prior to joining PowderJect in 1996, where he managed the legal process of its sale to Chiron for $1 billion in 2003. He was also Director and General Counsel at Zeneus.

Dr Rod Hafner, VP Research & Development Rod has over 15 years’ experience in the life sciences industry. He began his career at Proctor & Gamble, before working for Wyeth and Cortecs. He joined PowderJect in 1998, becoming Director of Programme Management and Vice President of PreDevelopment.

Dr James Shannon, Non-Executive Director James has over 20 years of experience in senior pharmaceutical development roles, and was formerly Head of Global Development at Novartis Pharma AG.

News September 2011: announced positive phase II trial results for its Toleromune hayfever vaccine, which substantially improved patients’ allergy symptoms compared to placebo and was extremely well tolerated. June 2011: announced positive results from a phase II trial of its Toleromune cat allergy vaccine, which demonstrated that the effect of the treatment was maintained one year later for patients who received four doses over 12 weeks. April 2011: completed £60 million fundraising for ﬁnal stage development of lead allergy products

APPENDIX 2 Nexeon (Case Study) Nexeon is a battery materials and licensing company developing silicon anodes for the next generation of lithium-ion battery.

Technology Nexeon’s unique silicon anode material unlocks the potential of silicon to deliver increased capacity without compromising lithium-ion battery cycle-life, providing lighter batteries with more power and longer lifetime between charges. Batteries containing Nexeon’s anode material have recently completed 500 full charge/ discharge cycles, an important milestone in the battery industry. The company has a broad patent portfolio relating to high aspect ratio silicon materials and the use of such materials in lithium-ion batteries. Nexeon’s production process uses cheap industrial grade silicon, and the etching is done at room temperatures and pressures, validating cost assumptions and conﬁrming its materials will show cost as well as performance beneﬁts compared to the competition. The company is providing material, coated anodes and cells under Material Evaluation Agreements to major battery and automotive companies.

Market Latest industry estimates suggest that the global Li-ion battery market is worth around $10 billion and is growing fast as more electronic devices are designed and adopted by an eager public. Independent market analyst Takeshita predicts that the market will grow to $30bn by 2017 with Li-ion batteries used in hybrid and electric vehicles.

Investment History Nexeon has raised a total of £55 million in investment from a range of investors including Imperial Innovations, Invesco Perpetual and Partnerships UK. Innovations holds a 40% stake in the company at an aggregate cost of £22.3 million.

Management Team Dr Scott Brown, Chief Executive Ofﬁcer Dr Scott Brown has a strong track record of intellectual property management and licensing. He has held senior management roles at Cambridge Display Technology (CDT), Sumation (a joint venture between CDT and Sumitomo Chemical) and Dow Corning. Dr Brown joined Nexeon as CEO in June 2009. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Professor Mino Green, Chief Scientiﬁc Ofﬁcer Professor Green is the founder and developer of Nexeon’s basic technology and an Emeritus Professor at the Department of Electrical Engineering at Imperial College London.

Dr Bill Macklin, Chief Technical Ofﬁcer Dr Macklin joined Nexeon in 2008 having previously held roles as Director of Research & Development at AEA Technology and Technical Director at ABSL Power Solution.

Ian McDonald, Engineering Director Ian has extensive industry experience, having spent 30 years in high technology process engineering. He was an Engineering Director at AEA Technology and has experience in managing and designing Li-ion battery manufacturing facilities.

News August 2011: completes £40 million fundraising to allow establishment of world-class manufacturing facility in the UK. June 2011: Nexeon wins the Martin & Audrey Wood Green Technology award at Venturefest 2011. December 2010: announces development of world-record capacity Li-ion battery cells, with highest capacity for their size. July 2010: company relocates to custom-built facility at Milton Park in Oxfordshire; the new facilities allow the company to accelerate its technology development.

Written evidence submitted by the Royal Society of Chemistry The RSC welcomes the opportunity to respond to the House of Commons Science and Technology Select Committee inquiry into Bridging the “valley of death”: improving the commercialisation of research. The RSC is the UK Professional Body for chemical scientists and an international Learned Society for advancing the chemical sciences. Supported by a network of over 49,600 members worldwide and an internationally acclaimed publishing business, our activities span education and training, conferences and science policy, and the promotion of the chemical sciences to the public. This document represents the views of the RSC. The RSC’s Royal Charter obliges it to serve the public interest by acting in an independent advisory capacity.

The RSC Response What are the difficulties of funding the commercialisation of research, and how can they be overcome? 1. In the UK, investment by venture capitalists has fallen to very low levels. Investment in start-ups has always been particularly low compared to investment in the later stages of commercialisation, but since 1996 it has significantly reduced. 2. The venture capital investment remained relatively low, with investments in UK companies falling to £677 million in 2009, from £930 million in 2008.81 3. The old venture capital model of commercialisation of research consisted of three stages of funding leading to an initial public offering (IPO). Although a healthy IPO market is essential to the success of the venture capital industry,82 the IPO exit model has virtually disappeared. This was replaced by separated funding rounds and earlier-stage public and private companies struggle to fill the gap in between.83 4. The most common funding difficulties are at seed and start-up stages, when the risks associated with investment are high. The lack of private funding is, pre-dominantly due to risk aversion on the side of investors, the slow IPO market and the low returns to investors. On average the time taken to successfully exit through flotation now averages almost seven and a half years, the longest time seen over the past two decades. This has a knock-on impact on a venture capital fund’s ability to invest in new companies.81 5. To increase private funding, actions are necessary from a wide range of stakeholders from Government institutions to the R&D companies themselves: 81 NESTA (2010) Venture Capital—Now and After the Dotcom Crash. 82 Deloitte (2011) Global Trends in Venture Capital: State of the IPO Market. 83 Ernest and Young (2011) Beyond borders Global biotechnology report 2011. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Government — De-risking the proposition to investors by introducing co-ﬁnancing measures (eg R&D tax credits, public procurement policies, collaboration on R&D projects, including research clusters together with academic institutions). A successful model often cited is that of the Defense Advanced Research Projects Agency (DARPA), an ofﬁce of the US Department of Defense responsible for funding the development of many technologies for use by the military.84 — Improvement of taxation system to incentivise private investors offering seed and start-up funds. — Increase public funding for public private partnerships.

Innovative companies — Utilise non-returnable funds available in the UK and Europe for early proof of concept in order to develop stronger cases for investment. These include: translational research grants eg follow on funding from Research Councils, SMART funds from the Technology Strategy Board, Regional funds; European collaborative programmes or Local/regional funds.

Technology Strategy Board, Technology Transfer Ofﬁces (TTOs), learned societies — Establish strategic partnerships between public and private sector eg the US Enterprise Development Programmes which foster linkages and partnerships between investors, entrepreneurs and other key players in the commercialization process. — Establish research initiatives focusing on market perspective and covering the full supply chain. — Maximize the use of funds by reviewing the key growth areas and supporting those as a priority. Increase public funding for demonstration projects and stimulate co-ordination and joint use of funding. — Improve knowledge transfer and access to intellectual property by setting realistic expectations regarding the commercial value of IP (role of TTOs).

Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 6. Life sciences, biotechnology, pharmaceuticals, medical devices and clean technology are perceived as cash intensive and slow at providing return on investment. These sectors are just a few examples of sectors struggling to attract venture capital, hence incurring delays in commercialisation of research.85 7. With IPO exit no longer a common option for venture capitalists, the primary (and essentially exclusive) exit is primarily through large pharmaceutical companies. Indeed, these large companies are reliant on in- licensed assets for around 50% of their development portfolio. However, they will place high demands on what they license in and in the main, will not invest until the asset has at least achieved Proof-of-Concept (PoC) in patients. This presents a series of challenges for investors who are looking at the biotech sector—their investment becomes longer term (beyond the traditional five-year term that a VC would usually work with), costly and risky (attrition is typically around 75% for Phase 2 clinical trials). 8. In the fragmented model for medicines research that is now emerging, revitalising the biotech sector by making the discovery-to-PoC segment more attractive to investors will be a key factor in underpinning commercialisation of UK-based research discoveries. There are a number of levers to achieve this. 9. Firstly, the substantial investment in biological/biomedical research needs to be accompanied by investment in key partnering disciplines (chemistry, chemical biology, systems modelling etc) to ensure that the biological targets selected have the best chance of delivering successful PoC studies. In addition, there is a window of opportunity now to embed experienced medicinal chemists in academic centres of drug discovery to ensure that the development candidates that emerge from academic laboratories and form the basis of the biotech pipeline build upon the wealth of knowledge that exists in the pharmaceutical industry around factors that drive attrition. This will go a long way to addressing the risk component. 10. Secondly, it is important that the parameters/criteria required for reimbursement (and therefore, commercialisation) for a particular disease are well understood and transparent so that research and clinical efforts can be targeted towards delivering these end-points. This requires improved communication across the sector, including regulatory authorities, funders, industry, academia and investors. 11. Thirdly, in order to address the issue of scale of clinical trials, effective biomarkers/diagnostics need to be developed to ensure that the study design is optimised in terms of patient selection and endpoints. This will require improved collaboration between clinicians and drug discovery groups and if successful, would be expected to have a major impact on the cost, timescale and risk associated with clinical PoC studies. As such, this would make the area of medicines R&D much more attractive to the investor community. 84 Defence Advanced Projects Agency (2012) www.darpa.mil 85 SCI Riding the funding rollercoaster (2011) www.soci.org/News/BioResources-Funding-Agri-Innovation cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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12. Each sector faces difficulties in slightly different areas in their development, but they all have similar barriers. Barriers are not necessarily linked to availability of funds, although access to capital is a commonly identified obstacle. Advice to support commercial decisions, market identification, commercial skills, access to pilot and demonstration facilities are also known to be barriers.

What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 13. A weakness in the UK is the declining manufacturing base. The high costs in the UK labour market historically have resulted in companies outsourcing the manufacturing of their products in other countries. In some instances technology is sold abroad to make it more viable to produce goods.86 However, for high-tech industries requiring a graduate workforce, the UK is now competitive with most China and India.87 14. Manufacturing is not the only reason R&D companies chose to commercialise their research abroad. Tax implications, risk sharing, entering new markets, proximity to feedstocks, high growth markets and gaining further investment from public funding in countries with friendly policies for investment eg Singapore and the BRIC countries, are also cited. 15. Many examples of commercialisation abroad can be found in the pharmaceuticals sector. For example in April 2011, Pfizer and Shanghai Pharmaceutical signed a memorandum of understanding to develop and commercialize a Pfizer product in China88. Pfizer chose this option as a way to expand its presence in China, share risks of product development or obtain further investment by partnering with a successful IPO (Shanghai Pharmaceutical).

What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 16. The RSC recognises that initiatives such as Knowledge Transfer Partnerships (KTP) and Knowledge Transfer Networks have provided an important step towards commercialisation of research by improving academia-industry collaborations. KTPs are bringing the economy £6 for every £1 invested in the scheme.89 17. An example of a successful Knowledge Transfer Partnership is that between Brocklesby Ltd and the University of York’s Department of Chemistry. Brocklesby Ltd produces biofuel from vegetable and animal oils from the food manufacturing sector. The company entered the KTP partnership with the aim of exploiting new markets by developing valuable chemicals from a by-product of biodiesel production that was costing the company £50k/year in disposal charges. The KTP partnership developed new applications, methodologies and products turning a cost into profit; Brocklesby Ltd has now additional revenue of £197k/year rising to £975k/ year in three years. 18. As a result of this collaboration, the University of York has increased its research on bio-resources and biofuels, published a series of articles in peer reviewed publications and used specific equipment and methodologies available in a commercial institution. 19. A few other intangible benefits of KTPs are the access of industry to highly qualified workforce to address specific problems in their processes over a determined period of time. On the university side, KTPs are providing a great contribution to workforce up-skilling, which is supported from Government funds. 20. Chemistry Innovation Knowledge Transfer Network (CIKTN) facilitated numerous collaborative projects which received funding through Government or European initiatives.90 21. One of these is BIOCHEM,91 a project funded by the European Commission, whose aim is to provide practical assistance to SMEs in developing new business, including help and advice in acquiring funding throughout the product development cycle to full commercialisation. 22. Since 2006 Chemistry Innovation has leveraged more than 130 collaborative projects with a value over £134 million that have an estimated potential value to the UK economy of £1.3 billion.92

What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 23. The RSC welcomes the Government initiatives proposed in the ‘Innovation and Research Strategy for Growth’. The Government is investing in the right measures to improve the climate for commercialisation of 86 Royal Society of Chemistry (2011) Materials that don’t cost the earth report www.rsc.org/costearth 87 Ray Elliott (2012) personal communication, Syngenta. 88 www.bloomberg.com/news/2011–04–21/pﬁzer-shanghai-pharma-signs-deal-on-potential-partnership.html 89 Debbie Buckley-Golder (2011) personal communication, Technology Strategy Board. 90 Chemistry Innovation KTN https://connect.innovateuk.org/web/case-studies 91 BIOCHEM project www.biochem-project.eu/ 92 Chemistry Innovation annual report 2011 https://ktn.innovateuk.org/c/document_library/get_ﬁle?p_l_id=55409&folderId=99992&name=DLFE-35412.pdf cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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research, eg reforming the tax system, providing extra funding to support VC investments, support for innovative technology SMEs and creation of large scale technology demonstrators. 24. We also welcome the Small Business Research Initiative (SBRI), aimed at supporting innovative ideas from companies, and in particular small companies, through public procurement. In 2010–2011 the UK’s public sector spent approximately £236 billion on goods and services,93 which is signiﬁcantly higher than the annual investment in all aspects of research and innovation of £11 billion. Under the SBRI scheme, it is important that the Government ensures the decisions for granting the contracts are made on lifetime value and not only short term cost savings. 25. The Stratiﬁed Medicines Innovation initiative will help accelerate development programmes and could lead to improved survival for clinical candidates. However, in order to ensure sustainable success for the sector, there is a need to invest in platforms and collaborations that will support the discovery phase, bridging drug discovery and clinical research, for the reasons highlighted under question 2. 26. The creation of the High Value Manufacturing Catapult Centre (HVM) is welcomed by the RSC. This initiative will allow better access to facilities, reduce the risk to innovation and bridge the gap between universities and businesses. Access to facilities could be improved by providing funding to small and medium enterprises (SMEs) to use the new facilities. A good model was the funding offered for the Industrial Biotechnology pilot plant facilities at the Centre for Process Innovation and this should be replicated for other centres part of the HVM Catapult. 27. A review in due course of the effect of the recently announced Government policies for bridging the valley of death would be welcomed.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 28. The RSC believes there should be a better balance between public and private sector funding for research, as private investments sometimes limit the proposals to be taken forwarded based on financial gains and not necessarily on the true potential for growth. An example is green technologies, which often face difficulty in raising private capital, due to mainly a long payback period (usually eight to nine years). 29. The RSC recommends an increase of investment of public funds for more solid proof of concept and de-risking path to market, as these will incentives investors to unlock more funds. 30. Tax incentives for investment should be given to individuals or private funds offering financial support for seed and early stage development in science and engineering projects. The RSC welcomes the recent fiscal announcements in the 2011 autumn statement and in particular the Seed Enterprise Investment Scheme (SEIS), which gives hefty tax reliefs to investors directly funding eligible start-up companies, from April 2012.

What other types of investment or support should the Government develop? 31. The RSC recommends public sector funding to be directed towards areas where there is a societal need, but no support currently exists eg R&D in and commercialisation of vaccines or antibiotics. The discovery of new antibiotics has become critically important because of the emergence of bacteria resistant to current drugs. February 2012

Written evidence submitted by Drug Discovery Centre, Imperial College London Imperial College London embodies and delivers world-class scholarship, education and research in science, engineering, medicine and business, with particular regard to their application in industry, commerce and healthcare. The Imperial College Drug Discovery Centre, aims to translate the wealth of Imperial’s disease- related research into novel therapeutics using pharmaceutical industry expertise.94

1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 1. The discovery and development of novel therapies for diseases with significant unmet need is a difficult and high-risk activity, taking in excess of ten years. However, there is a great need for innovative treatments with high societal impact such as Alzheimer’s disease, cardiovascular diseases (eg heart failure), antibiotic resistant infections (eg MRSA) and others. 2. Data from Pharmaceutical companies suggests that only one in twenty five small molecule projects results in a commercial product. This level of productivity is much lower than any other industry. Further, current data suggests that each new drug costs $700 million–$1.5 billion to reach the market and 10–15 years to create. The long-term investment required for this high–risk, high cost, low productivity paradigm means that investment in this space is almost impossible to achieve. However, there remains a moral imperative to find 93 Business link (2012) www.businesslink.gov.uk/bdotg/action/layer?topicId=1074033478 94 www1.imperial.ac.uk/medicine/research/institutes/drugdiscoverycentre cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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innovative medicines for un-met need that bring with it very significant commercial opportunity, as evidenced by the historic success of the Pharmaceutical (Pharma) Industry. 3. The Pharma Industry response to this situation is to increasingly withdraw from the earlier and undoubtedly riskier (Pre-Clinical) phases of research. Most Companies are now planning on >50% of their pipeline being sourced from Academia and Biotech. However they, their shareholders and Investors are failing to invest in these phases, preferring to acquire new products that have been fully validated by others. 4. Further, these companies anticipate that other agencies, such as Research Councils and Charities, will support these high-risk activities until validated (de-risked) clinical candidates are identified. However, current translational schemes are inadequate to support academia and Biotech in achieving such candidates. There are very few investors prepared to provide funds for these high-risk stages. 5. The ability of the UK to effectively translate the wealth of its publically funded basic health research is declining as UK Pharma dismantles its own early stage R&D. Against this, the availability of the required industry skills (eg Chemistry, Pharmacology) due to job losses in the UK is high. However, this scenario will only exist for a limited time before the UK’s capabilities in this space will decline rapidly as will UK leadership in Pharmaceutical Sciences. 6. It is therefore urgent that the UK addresses the lack of funding in the therapeutic translation space. Many UK Research-based Institutions are currently using their own resources to create the capabilities that address this. We believe that resources from the BioMedical Catalyst Fund should be used to establish key “Centres of Excellence” for Research & teaching in Therapeutic Discovery; linked directly to the AHSC/BRCs for Clinical evaluation as the most efficient way of effectively translating basic research into validated novel therapies with significant commercial potential. This position has also been laid out in the Royal Society of Chemistry’s “Healthcare Innovation in the UK” position paper. 7. The Imperial Drug Discovery Centre (DDC) is an example of this: a small multi-disciplinary group of ex-industrial drug discovery scientists focusing on the validation of novel targets from basic and clinical research and then translating them to clinical validation. In four years the DDC has succeeded in pump priming >25 novel projects; progressing four to five towards clinical validation, creating one spinout company to date, with potential for a second in the near future. However, the work of the DDC is severely threatened by lack of funding. 8. There have been significant levels, of public investment (eg MRC, EPSRC, BBSRC) in basic health research and recently in Clinical research (eg NIHR, NOCRI). However, support for truly translational therapeutic activities linking these areas, such as that as that covered by DDC, is severely limited. The University funding model is not well placed to support this activity. 9. In order that the potential of the public investment in basic research is to be realized, it is essential that therapeutically aligned translational capabilities, such as the DDC are supported and made available to all UK Research institutions via “Centres of Excellence”. Such capabilities will directly enable the creation of commercialisable entities for development in the UK Biotech or Pharma Sector.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 10. As discussed above the Life Sciences and in particular the Pharmaceutical, Biotech sectors have very significant challenges. The high risk and long development times of this work makes it a particularly difficult area in which to secure investment and to effectively commercialise products. 11. Models in which Open-Innovation and data sharing are actively pursued have been widely used and successful in Industries such as IT. Effective data sharing would increase the efficiency of this high cost but ultimately high value activity. However, there have been historical difficulties in establishing a significant common knowledgebase, that includes information on both successful and unsuccessful approaches, as most of this data is embargoed by competing companies.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 12. Even for projects with candidate compounds achieved with charity support, we have had difficulty in securing sufficient funds for the pre-clinical studies required to assess safety and efficacy in man. We have one example of a candidate for breast cancer for which no UK funding could be secured and which we are eventually partnering with a US institution. In accepting funds to enable clinical studies with this partner we will lose significant UK ownership of the asset.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 13. The Funding delivered by the MRC for translational activities ie the MRC DPFS/DCS scheme, MICA, MRC/AZ, have and are supporting translation of therapeutics and devices. However, despite clear evidence to the contrary, their funding decisions suggest that they believe that early small molecule drug discovery cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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continues to lie predominantly within Pharma’s remit. As such, they are not effectively supporting the development of new approaches to drug discovery from the academic community and addressing the gap left by the decline of Pharma R&D.

14. TSB schemes directly and effectively address areas such a Stratiﬁed Medicines very well for those who are successful in securing funding and industrial partners. Such schemes do appear to support commercialisation effectively.

15. However, there are too few schemes in the early therapeutics space partly due to the lack of available early R&D industrial partners. TSB calls are usually available for a very limited time and this makes it difﬁcult to secure industrial partners for early phase therapeutic projects.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

16. The UK benefits from an integrated healthcare system that should be capable of translating ideas from the bench to the clinic in a manner which cannot be done elsewhere. However, our understanding of important diseases like Alzheimer’s is not yet good enough to predict which drug targets which will deliver benefit in the clinic. Investment in fundamental disease biology understanding provides the seed corn for initiating drug discovery, but we can only validate these hypotheses by creating specific chemical and biological tools. The Universities are ideally suited to link these areas directly to the clinic, in a way that is outside the usual commercial and academic funding sources. This effectively excludes translation of these ideas.

17. The recently announced Strategy for UK Life Sciences has been widely welcomed. However, it is essential that initiatives be specifically targeted to the key “valley of death”. Specifically this refers to the Phases between basic disease research and identification of a suitable quality candidate therapeutic.

18. If these phases are suitably supported to create “Centres of Excellence for drug and therapeutics discovery”, this will enable better selection of robust novel targets, reducing project attrition and increasing the likelihood of achieving candidate therapeutics with commercial potential.

19. It is notable that much of this research sits outside the Commercial sectors, but within the academic space. As such suitable academic (pre-company formation) funding schemes, which enable such translational, research, the development of skills and training and of robust commercialisable candidates is key.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved?

20. The culture of philanthropic and early investors in countries such as the USA has a signiﬁcant impact on the availability of funding for early translational research. A result of this is the lively and close relationship between Research Institutions and investors, which enables commercialization of new inventions from the institutions. The Boston area is an excellent example of this.

21. The government should actively encourage early, philanthropic and private investors with tax and other incentives (Consortium Relief, EIS). The Citizens Innovation Funds (CIF) suggested by the BIA is an interesting suggestion aimed at securing investment from mid-net worth individuals as well as high-net worth individuals.

22. It is essential that those who ultimately beneﬁt from commercialized products be also encouraged to invest in their creation. This should include downstream Pharma companies (the customer for most early therapeutics) as well as patient bodies and advocacy groups. These groups are increasingly becoming an essential source of research funding in the USA.

7. What other types of investment or support should the Government develop?

23. Funding schemes that directly support the creation of academic “Centres of Excellence, for drug and therapeutics discovery” directly linked to the patients via the AHSCs/BRCs are absolutely key to this. Direct support of this area will enable greater numbers of validated therapeutics to be commercialized via spinout companies or UK based Biosciences Companies. February 2012 cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Written evidence submitted by the Publishers Association Introduction 1. The Publishers Association (“the PA”) is the representative body for the book, journal, audio and electronic publishers in the UK. Our membership of 120 companies spans the academic, education and trade sectors, comprising small and medium enterprises through to global companies. The PA’s members annually account for over £4 billion of revenue, with £3.1 billion derived from the sales of books and over £1bn from the sales of learned journals. 2. The PA welcomes the Committee’s timely inquiry into the commercialisation of research, following on from publication of the Department of Business, Innovation and Skills’ Innovation and Research Strategy. The debate about the commercialisation of research runs in parallel with the debate about access to research outputs and role that this may play in fostering innovation. 3. Publishers are committed to the widest possible dissemination of and access to the scholarly publications in which we invest and we support any and all sustainable access models that ensure the integrity and permanence of the scholarly record. It is these sustainable access models that facilitate the commercialisation of research, as we make clear below. Making available the peer-reviewed archive-quality records of funded research to the widest possible audience is an essential element of onward exploitation of the public investment made in the original research.

Access to Research Outputs—A UK Success Story 4. The UK’s academic and professional publishing industry is the most successful in the world, home to 10% of the 2,000 scholarly publishers worldwide. Around 400,000 research articles are published from the UK each year, in upwards of 5000 UK-based journals. 5. The UK’s success in producing research outputs is demonstrated through the following statistics95 of scholarly publishers: — ex-UK turnover is in excess of £1 billion, of which 80% derives from overseas subscriptions and licences; — UK research authors were responsible for 114,000 articles in 2009, 6% of the global total; — the UK publishing industry including all books and journals in print and electronic form (but not magazines or newspapers) has a turnover of around £5 billion; and — journal publishers employ 10,000 staff in the UK.

Quality of Research 6. Publishers play a crucial role and make substantial investment in ensuring research outputs are edited, peer-reviewed and prepared for publication and archiving. There is an entire publishing ecosystem built around this function. 7. Globally 2.5million+ referees contribute to the peer review process of the 3million+ article submissions received each year. Accepted submissions are edited and prepared by 125,000 editors and 350,000 editorial board members. The ﬁnal outcome of this process is publication, in a scholarly journal, which is then disseminated worldwide. 8. Without the investment of publishers, research outputs would be neither as trusted nor as accessible to the research community and beyond. Publishers manage both quality control through peer review and version control, ensuring that the Version of Record deriving from scholarly publication is the version that is used for access and consultation. It is this trusted, quality Version of Record that forms the basis of further exploitation and commercialisation. 9. The journals in which research articles are published represent an assurance of quality, provenance and community recognition for the research communities that they serve. 14.4% of the world’s most highly cited outputs are from UK-based researchers.96

Access to New Markets 10. Science is global, and scholarly publishers have a global reach. Through partnerships, and the application of technology, publishers are able to make available the peer reviewed journal articles that derive from the results of research, throughout the physical and scientific world to all those who need it. This global reach maximises the potential for further exploitation and commercialisation of publicly funded research. 11. It is no coincidence that a 3–4% growth in the number of articles and journals published between 1996 and 2007 correlated with a 3–4% annual growth in R&D funding, and a 3–4% annual growth in the number 95 Given the scale and global nature of the industry, of necessity some of these figures are estimate. These figures relate to journals, although many journal publishers will also be publishers of scholarly monographs. 96 Royal Society, “the Scientific Century” 2010. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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of R&D workers. This increase in R&D is partly due to the export of Versions of Record, and the journals they are part of. 12. By reaching the widest possible audience and with their mark of quality, journals also act as a “calling card” for UK excellence: partly as a result of a strong tradition of academic and scholarly publishing in the UK, our share of global funding for science research is 3%; home to only 1% of the global population, the UK is clearly punching above its weight.

Stimulating New Research 13. Publishers also invest in essential services for researchers that enhance efficiency and bring significant gains in productivity. For example, scholarly publishers work together on common standards for interoperability, search and analysis, especially through CrossRef, an operation founded by publishers, which developed the DOI identifier that delivers seamless navigation across the scientific literature and which is also providing the basis for supplier-neutral analysis of usage and for open discoverability. 14. Scholarly publishers potentially have a valuable role to play in assisting access to research datasets. Significant amounts of data are already made available as supplements to scholarly publications. Several publishers are already linking articles to various datasets, and are willing to work with funders to develop further identifiers that can link articles to primary datasets. 15. Publishers strive to extend access through further innovations, including many variants on the producer- pays “Gold open access” model, one of which is cited as an example of good practice in the Innovation and Research Strategy for Growth, discussed in further detail below.97 Publisher engagement with the work of the Finch group has played a valuable role in bringing stakeholders together to evolve a practical solution to expanding access both to UK research globally and to global research in the UK. 16. In addition to making current publications accessible, publishers have made significant investment in digitizing the whole canon of scientific literature from 1665 onwards for researchers to consult. 17. A UCL study has shown how e-journal usage drives productivity and commercialisation.98 For example, research grants and contract income has increased 324% as downloads of journal articles have doubled.

Data and Text Mining 18. Content mining, or text and data mining (TDM), is a fast developing technology which enables the automated exploratory analysis of large volumes of digital content to extract information and to identify previously unrecognised relationships. 19. TDM is providing scientific, medical and other researchers with exciting new opportunities for analysing the huge volume of research outputs available in digital form and the potential to make new discoveries amongst current and historic bodies of research. 20. Publishers are at the very heart of this development. As the curators and in most cases owners of the publication rights to the journals, monographs and content databases which comprise the work to be copied and mined, publishers are investigating and investing in the technology necessary to support TDM, such as converting content to a format which can be understood by mining tools and maintaining the platforms and providing on-going support to content miners. 21. This potentially symbiotic relationship between publishers and researchers (be they academic, commercial or public sector) ensures that managed access to copyright works for TDM purposes operates to the benefit of all parties. A recent study by the Publishing Research Consortium into Journal Article Mining found that 90% of respondents routinely permit requests for DTM from academic researchers, with 60% doing so in all cases.99 Only 12% of requests are turned down, on the basis of questionable bona fides of the applicant. 22. Other potential collaborations to extend access to and the functionality of scholarly publication datasets are being explored, including metadata linkages between publisher and funder sites, and access via rental models.

BIS Innovation and Research Strategy for Growth 23. As described above, publishers are committed to the widest possible dissemination of and access to the scholarly publications that we publish and we support any and all sustainable access models that ensure the integrity and permanence of the scholarly record. It is disappointing that statements included in the Innovation and Research Strategy are misleading, and appear to pre-empt the ﬁndings of the independent Finch Working Group. 97 Innovation and Research Strategy for Growth, p 77. 98 “E-journals, their use, value and impact”, 2009 RIN/Ciber. 99 www.publishingresearch.net cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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24. The crucial element here—particularly for the purposes and process of commercialisation—is the sustainability of access models. Unfunded free access to research articles—far from raising the prestige of UK research and encouraging technology transfer—will instead undermine the financial base on which the UK’s strong scholarly publishing industry stands. And, without sustainable funding to support the value chain that publishers work within, the entire ecosystem of publishing, commercialisation and reinvestment in research and innovation will be destablised. 25. We strongly dispute the statement that “research is often difficult to find and expensive to access” when dramatically more research is now available at historically low cost. As stated above, access has continued to improve supported by a variety of business models that ensure the integrity and continuation of an ecosystem dedicated to dissemination of scholarly outputs that inform the commercialisation of research. 26. The notion that Research Councils expect the researchers they fund to deposit published articles or conference proceedings in an open access repository at or around the time of publication is misleading at best and fails to address key issues such as how Research Councils make funding available through grants to enable publication. It is important to note that whilst Research Councils fund research projects and the reports produced by their researchers, they do not fund the final peer-reviewed, archival-quality outputs from that research in the form of journal articles. These articles are the subject of considerable investment by publishers and those with whom we work and require funding accordingly. It is this issue that gold open access publication models in particular are seeking to address. 27. It is also unclear how unfunded access will stimulate commercialisation of research. As well as being unsustainable in and of themselves, the contribution of publishers to the Version of Record process, the export of and expanded access to respected and recognised journals, and the tools publishers invest in to aid further research all point to the crucial role that publishers play in the exploitation and commercialisation of research. February2012

Written evidence submitted by The Association of Independent Research and Technology Organisations (AIRTO) This response is from AIRTO (The Association of Independent Research and Technology Organisations). AIRTO’s members comprise representatives from: — Public Sector Research Establishments (PSREs). — Non-profit distributing member and non-member based research and technology organisations (RTOs). — Privately held research and technology companies (including Contract Research Organisations— CROs). — Universities (Enterprise/Technology Transfer Departments). — R&D departments of industrial companies. — Business support (including Access to Finance) and early stage technology-based venture capital companies. AIRTO’s members generally operate in the private sector but with varying degrees of interaction and financial involvement from the public sector. All are to a significant extent involved in aspects of the translation of ideas, research and technological advances into the commercial arena, for clients in both the private and public sectors. AIRTO’s response to the questions posed follows:

1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 1.1 There are in reality two principal challenges within the end-to-end process of commercialising scientific and technological research that, taken together, constitute the so called “valley of death”. 1.2 The first such area is the industrialisation of the research results themselves ie turning the outputs of work aimed at the generation of new knowledge into fully understood technology that will be capable of surviving and operating in the challenging user environments required by commercialisation. This adaptation to harsh user environments, such as those found on production lines, in transport systems, in the natural environment, in space, on the battlefield and even in the home, just to cite a few examples, is beyond the remit and capability of most university laboratories that often lack the requisite infrastructure. (RTOs on the other hand do often have access to requisite infrastructure and could be better utilised in this regard). Those engaged in commercialisation frequently do not discover what is unknown about the technology until they start the process of industrialisation. Additionally, in many instances, challenging cost targets for the eventual product or service have to be met. This is a risk both to those who are taking on the process and those who are financing it. 1.3 The second area of challenge is the process of defining and implementing a competitive business model and the execution of a viable business plan. The risks here include uncertainty over: eventual take-up in the cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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marketplace, reaction from competitors, ability to assemble a management team and changes in general economic conditions, amongst other things. 1.4 The main difficulty in approaching the ‘valley of death’ is overcoming the perceptions of those financing a commercialisation (be that industry licensees, early stage venture capitalists, lenders or in-house “sponsors”) that the risk of losing their investment is too great. This is frequently compounded by a significant communication barrier between innovators and investors (or those responsible for making investment decisions). The innovators frequently don’t understand the language and fears of investors, particularly those from the private equity and venture capital domain, and the investors don’t have the knowledge or tools to properly evaluate the development risks or market diffusion potential of innovative technology, unless it is pretty obvious. 1.5 Summarising the above, the main uncertainties creating such investor perceptions of risk for any given research-related commercialisation opportunity are generally that: — the market need remains unproven; — the intellectual property is not sufficiently protected or secure; — the appetite for the proposed innovation in the supply chain providing the route to market is unclear; — there is not a credible team to manage the commercialisation; — expensive (and possibly unknown) technology development issues may remain which will have to be tackled and which will require additional time and finance to resolve; and — the very early stage investors may find themselves at significant risk of extreme dilution in later rounds of investment in a new venture. This is particular acute with long timescale developments, which are typical of, for example, the biotech sector. 1.6 These problems are compounded by: — communication difficulties and lack of mutual understanding between innovators and investors; — insufficient availability of financial resources to follow on from research with de-risking “proof of concept” activities; — insufficient availability of management expertise with experience in early stage commercialisation; — insufficient availability of financial resources to support skills development (including human resource skills) amongst aspiring entrepreneurs. This is a significant challenge given the variety of perceptions and attitudes found amongst researchers to commercialisation of their work; and — uncertainties over the size of investment required, the likely magnitude of the eventual return and the timescale required to obtain that return. 1.7 Such difficulties can be overcome by increasing efforts to raise levels of investor confidence prior to moving on to complete reliance on mainstream privately sourced development effort and finance. This can be achieved by: — continuing the support provided through programmes such as the forthcoming Business Coaching for Growth programme from BIS, particularly the investment readiness and investor readiness components; — increasing support for pre-commercial ‘proof of concept’, seed stage equity and loan funding (probably with a combination of public and private sector provision); — making more use of post-research incubation capacity and assistance, especially that which facilitates access to harsh user environments, potentially available through RTOs (as recommended in the recently released BIS Research and Innovation Strategy), including the new Technology and Innovation Catapult Centres; and — reducing excessive dilution risks for very early stage investors by providing liquidity for such very early stage investments, particularly those in longer term developments, possibly through new specialist secondary funds. This will also avoid premature loss of support from public sector financing and avoid excessive dilution of early stage public sector investments, as experienced by previous Early Growth and similar government supported funds.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 2.1 The first attempt to commercialise should usually be to license into an existing supply chain. However, there are multiple reasons why this frequently fails, many of which are the same as those that deter potential backers of start-ups. 2.2 Looking at the problems from the perspective and experience of third party investors in new enterprises, there are some sectors that pose specific difficulties. Examples are: cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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2.2.1. Sectors with signiﬁcant regulatory or approval requirements, such as biotech and aerospace respectively, where the timescales needed to prove compliance increase costs and risk and lower the rate of return on investments. This is a well-known issue and deters many investors. 2.2.2. Sectors where there is an effective or near monopoly in the UK market in terms of procurement, such as health with the NHS. This means that there is really only one signiﬁcant UK potential early adopter client. Any barriers in NHS purchasing plans can be fatal to commercialisation efforts. 2.2.3. Sectors with weak or conservative innovation cultures such as, for example, construction, where past examples of innovation may have had only limited success, generating a risk averse culture. 2.3 In general, however, different sectors exhibit different characteristics and need different solutions.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 3.1 There are some high profile cases of UK inventions being exploited overseas. For example, despite the work done in the UK, all major carbon fibre production is overseas. More recently, significant overseas investment in plastic electronics is threatening to take exploitation of this technology off-shore. In addition, there are large multinationals exploiting licensed-in technologies, in which case it may be that in some instances their non-UK facilities will be best placed to develop the technology concerned. It should be noted also that such companies may choose to support research outside the UK where there is both equivalent research quality and better support for commercialisation or where regulatory requirements stipulate technology validation in global territories (eg in pharmaceuticals). There are many reasons for multinationals to operate in multiple territories, many of which are to do with spreading of risk and differences in local economic conditions, rather than support for commercialisation per se; their globalisation does however confer freedom to move activities and assets from territory to territory and the extent of local support for the riskier stages of commercialisation may be one such factor. 3.2 A possibly more significant problem is that UK interests frequently cannot hold on to ownership of innovative research and technology being commercialised in spin outs once early investors need to seek a first exit point and the enterprise needs to move on to more substantial growth. Vulnerability to loss of UK ownership is brought about by a combination of a) the tendency to undercapitalise new enterprises, b) the need on the part of many investors to churn their capital and to demonstrate early returns and c) the attitudes of UK financial institutions to risk and, for example, the inability to hedge such risks in unquoted investments. 3.3 Much of the evidence is anecdotal. If it is felt that there is a lack of systematically produced evidence on this question it may be worth commissioning research to quantify the scope and scale of the problem and to estimate the loss of added value to the UK which results. Correcting the problem through some form of intervention may be a complex challenge and would need careful planning. 3.4 We should not lose sight of the opportunities to transfer research and technology from elsewhere in the world into the UK for commercialisation.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 4.1 This is a complex question; assessing the true impact of past and current initiatives is masked and made difficult by the frequent changes that have been made to these initiatives year after year and by the highly targeted but incomplete nature of their coverage. 4.2 It is important that support be supplied in a consistent fashion for a sufficient period of time to enable a meaningful measurement of impact; this has rarely been the case in recent decades. 4.3 It is important also that initiatives cover the full spectrum of market failures on the journey from research to commercialisation; without that the good work done in one area may falter further down the line. For example, much effort has been put into universities and their enterprise or technology transfer offices, but the resources available to the Technology Strategy Board have been insufficient to take forward to the next stage of development many of the worthwhile opportunities emerging from these sources (and from the preceding investment in the research base). 4.4 Therefore, unless support is applied to the sequence of activity needed for successful commercialisation in a proportionate and consistent manner over a sufficient timescale, there is a risk that it will be wasted. 4.5 In the past, in our opinion, too little attention has been given to post-university support. In the last two years the situation has worsened with the closure of the Regional Development Agencies (RDAs) and therefore the cessation of their support for applied research. The very necessary investment in the new Catapult Centres, while strongly welcomed, does not sufficiently compensate for this diminution of this support for wider applied research and commercialisation activity. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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4.6 In the absence of the ability to produce a systematic overall impact assessment, the evidence has to be piecemeal and based on case studies. It is also open to influence by contextual factors not directly related to the support mechanisms in question. AIRTO members can however provide a number of such case studies. 4.7 We would also refer to AIRTO reports on innovation (“Study of the Impact of the Intermediate Research and Technology Sector on the UK Economy”, (2008), Oxford Economics; and “Supporting Industrial Innovation in the UK: A view of Government Grant Assistance Schemes (Past, Present and Future)”, (2010), AIRTO). There are also many other reports, particularly on access to finance initiatives for commercialisation in general, which assess specific schemes, from organisations such as NESTA.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

5.1 The new BIS Research and Innovation Strategy recognises the need for attention to the full journey through TRLs 4 to 7, from research results to commercial adoption. This is very welcome in the light of the comments under 4 above. 5.2 It also recognises that the Research and Technology Organisations (and similar bodies) are underutilised assets in the drive to correct the market failures described. The new Technology and Innovation Catapult Centres will also begin to help to restore some of the balance of support between fundamental, applied and translational research, which has been lost over the last 40 years. 5.3 Whilst some useful measures outlined in the government strategies are essentially costless for the public purse, the real success will come from the application of additional ﬁnancial support to offset risk. With the current extreme constraints on public ﬁnances, this will probably have to be brought about, at least in the short term, through the provision of incentives for greater private sector investment. This will require some imaginative and possibly novel mechanisms.

5.4 The BIS economics paper that precedes the strategy talks of channelling funds to stimulate commercialisation via the Research Councils (“BIS Economics Paper No 15—Innovation and Research Strategy for Growth”, (2011), BIS). It should be noted that this is not a substitute for the withdrawn RDA funding and is generally available only to academic institutions, leaving PSREs and RTOs still unable to be supported effectively in their efforts to translate research into commercially attractive technologies. Some public funding could be more effective if it is used to support commercial organisations and RTOs in their work with universities, rather than directly funding universities to deliver exploitation activities in isolation.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved?

6.1 AIRTO suggests that the UK should encourage more private equity investment.

6.2 Attracting private equity investment (and also loans) requires measures to reduce risk (particularly technology risk with which many investors are not comfortable) and to increase confidence. Technology risk can be addressed through collaborative R&D projects funded or part-funded through the TSB, coupled with demonstration projects to confirm “proof of concept”. One way of creating more confidence in the UK’s environment for innovation would be to better communicate the capabilities and capacity of the RTO sector as an expert testing ground for developing new technologies, to the investment community. In addition successfully communicating the comparative strengths of the UK’s framework for protecting IP is an important factor in creating investor confidence. 6.3 European Framework grants provide another similar source of assistance but the UK needs to become better equipped to influence the calls and submit successful applications. 6.4 Most grant schemes require matching funds from the applicant and this can be a problem for pre-revenue start-ups that are too early to attract equity investment. A solution to this problem has yet to be found, but it is a barrier to many technology companies seeking to get going. 6.5 Equity investors generally seek companies with demonstrable revenues from contracts. The ability to demonstrate such revenues increases the likelihood of being able to raise funds. The public sector can assist with placement of contracts through SBRI schemes and via public procurement.

6.6 Further steps to increase conﬁdence that technology-related difﬁculties can be tackled and overcome include emphasising the availability and capacity to help with practical solutions that exists in the network of RTOs and other independent research and testing establishments, including the new Catapult Centres.

6.7 It is essential however that the various measures to encourage early stage investment are followed through until early investors can exit at a proﬁt, otherwise the potential for early stage investment in technology companies will not have been demonstrated and investors will retreat again if the experience is too ﬁnancially painful. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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6.8 Private equity investments can be leveraged with matching public sector support through Early Growth and Enterprise Capital Funds and similar vehicles. 6.9 Balanced teams are needed to commercialise research successfully and many of the softer, non- technological management skills in particular are in short supply. More support is needed to increase capacity in the desired skill sets. This can be brought about through appropriate training programmes, by supporting skills development programmes which encompass technology familiarity and management and by encouraging technically trained and experienced people into the early stage investment arena.

7. What other types of investment or support should the Government develop? 7.1 The US uses its SBIR scheme to support, to great effect, early stage SMEs through the use of procurement contracts, including for research. The UK has trialled an equivalent scheme (SBRI) and AIRTO believes that this mechanism should be used more widely. Some AIRTO members trialled the scheme very successfully with the Engineering and Physical Sciences Research Council in the 1990s, but this was not pursued beyond the pilot stage because of concerns over the resources required to screen applicants more widely. Mechanisms for screening applicants should be reviewed. The UK should also support the introduction of an EU equivalent which is currently proposed for the forthcoming Horizon 2020 programme, which will replace FP7 in 2014. 7.2 Given the extreme difficulty of increasing public spending in the current economic climate, every effort should be made to use public procurement budgets to support innovation via the placement of contracts for new and innovative products and services. Such early adoption by a customer, albeit from the public sector, will help to stimulate confidence and leverage investment from the private sector. 7.3 Also, given the high level of secured assets required by banks to underpin loans, and given that most enterprises engaged in commercialisation require a mix of equity and loan finance, some effort should be made to introduce loan instruments as part of government’s support measures, alongside its measures to support equity finance. 7.4 Finally, to adjust the balance of support for projects and enterprises seeking to cross the valley of death, support for the TSB should be increased wherever possible. However, the terms of the support provided by the TSB do not constitute a level playing field for all types of participating organisation. This is leading some PSREs and RTOs to conclude that they cannot participate in TSB schemes without losing money. This will worsen a situation in which the BIS Research and Innovation Strategy already acknowledges that RTOs are an underutilised resource in the UK for the purposes of increasing the UK’s innovation and commercialisation capacity. If this continues, the concentration of scarce skills for this kind of activity to be found in these organisations will remain underutilised and may eventually wither, to the detriment of the UK’s ability to innovate and commercialise its research.

Declaration of Interests This submission is made by the Association of Independent Research and Technology Organisations (AIRTO). The organisation represents research organisations and technical consultants, operating in the space between the academic research of universities and the commercial needs of industry. AIRTO members undertake research and development, and knowledge and technology transfer. This submission does not necessarily represent the views of individual member organisations. AIRTO currently comprises organisations, employing more than 20,000 scientists and engineers, with a combined annual turnover in excess of £2 billion (AIRTO Ltd. is a company limited by guarantee registered in England No. 1217006 Register ofﬁce address: National Physical Laboratory, Hampton Road, Teddington, Middlesex, TW11 0LW. AIRTO is a not-for proﬁt organisation funded by membership subscriptions, and managed under contact by NPL Management Ltd.). The members of AIRTO currently are: ARUP MIRA Ltd BMT Group Limited The Manufacturing Technology Centre (MTC) BRE Group The Motor Insurance Repair Research Centre (MIRRC) The Building Services Research and Information National Metals Technology Centre (NAMTEC) Association (BSRIA) National Physical Laboratory (NPL) Campden BRI National Nuclear Laboratory (NNL) CERAM Research Ltd The Paint Research Association (PRA) City University London Pera Group CIRIA QinetiQ Group plc. Clear Angle Technologies Quotec Ltd. E-Synergy Ltd. SATRA Technology Centre FIRA International Ltd. The Scottish Whisky Research Institute (SWRI) Halcrow Group Ltd. The Smith Institute Health and Safety Laboratory (HSL) Smithers Rapra Technology Ltd HR Wallingford Group Ltd (HRL) The Steel Construction Institute (SCI) Institute for Sustainability Thames Innovation Centre Ltd. (TIC) ITRI Ltd. TRADA Technology Ltd. (TTL) cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Leatherhead Food Research TWI Ltd. LGC University of Surrey February 2012

Written evidence submitted by Midven Background to Midven 1. Midven is a privately-owned venture capital fund manager which, inter alia, manages the Rainbow Seed Fund (RSF). The Rainbow Seed Fund is a £10 million fund established in 2002 by the Department of Business, Innovation and Skills (BIS) and its predecessors to fund the early stages of commercialisation of technologies from its public sector research establishment base. RSF consists of a partnership of publicly funded research laboratories, including Rutherford Appleton and Daresbury Laboratories (STFC), Porton Down (Dstl), Babraham and John Innes Centre (BBSRC) and the various research centres of the Natural Environment Research Council (NERC). 2. RSF is managed independently by a specialist venture capital fund manager, and provides investment to support the early stages of commercialisation of technology and services from its partners. RSF makes individual investments of between £10,000 and £500,000, the upper figure being a cap imposed by BIS. The Fund (through Midven) works very closely with the technology transfer offices of the Fund’s partners. 3. Over the 10 years since inception the Fund has invested approximately £6.5 million in 24 companies. The Fund’s investment has been enormously successful, leveraging substantial other private investment of over £110 million from a range of investors from angels to overseas corporate investors. However, although the portfolio is healthy and promising, no significant returns have yet been made, underlining the length of time it takes for early stage commercialisation to bear fruit. 4. Midven believes the inquiry is timely and offers an opportunity to discuss the difficulties encountered in commercialising and exploiting UK research and technology, taking it from initial concept or invention to business profitability. 5. The Committee set out a number of questions. Midven has chosen to focus its response on questions 4, 6 and 7.

Midven’s Response Q4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 6. We welcome the increased grant support which Technology Strategy Board (TSB) is providing. However there are areas in which the TSB could do more: (i) Provide more funding at the early stage, such at pre proof of concept and proof of market stages. (ii) Signiﬁcantly shorten the time taken to consider and approve/reject grant applications, and then to allow the successful projects to start. (iii) Improve links (whether formal or informal) with the venture capital community. For the good of the UK economy it must make sense for the two to work more closely together. However, there are few, if any, people within TSB who have experience of the venture world, and (probably) vice versa. 7. The TSB also has responsibility for Government’s procurement initiative (also known as SBRI). This is overwhelmingly seen as a good idea, and it is understood that it has to be properly thought through, but in its current guise it resembles another grant programme for early stage ideas and not a route to early, sustainable sales for SMEs.

Q6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? This is Midven’s main area of expertise, and we break our answer down into distinct areas: — Angel investment. — Seed Fund investment. — Tax-incentivised investment. — Venture Capital investment. — Institutional investment.

Angel investment 8. As frequent co-investors alongside angels we are strong supporters of the angel sector. However, from our perspective it often seems that Government approach is over-reliant on individual entrepreneurialism, cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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usually in the form of angel investment and involvement. Given our role we will be accused of being biased ourselves, but most angels would, we think, acknowledge the key role played by funds. Often—especially when there are a number of angels involved—the fund acts as the lead investor, negotiating terms and leading the legal documentation, and then taking the lead in post-investment monitoring and in corporate governance matters. A relatively small proportion of angels have the skill, the time and the inclination to get involved and provide the support and governance that the funds do as a matter of course. The reality is therefore that many deals would simply not happen, and many companies would not survive and prosper if one of more funds were not involved, yet this central role is very often overlooked in favour of the more newsworthy “angel angle”.

9. It is also essential to recognise that many technology investments take considerable time and funding to reach the market. And that unfortunately few angels have the financial resources to fund a technology company all the way from the very early stage of research to profitability. It is therefore not realistic to think of angels as being the complete answer to funding problems for anything other than the smaller companies. Fund managers are able to make larger investments than most angels and, not surprisingly, tend to have much better linkages to other funds, allowing larger investment rounds to be raised—obviously more important as the company grows. To cite our own experience, whilst RSF cannot claim credit for having sourced every single penny of the £110 million raised by our portfolio companies, we certainly have been involved in a substantial portion of it, and several companies would simply not have made the progress they have without us. With the best will in the world it is difficult to see how angels would have managed to achieve as much in this area.

Seed Fund Investment

10. We therefore believe that Government should pay equal attention to the role of Funds in the commercialisation ﬁeld. The Government, along with the Wellcome Trust and David Sainsbury’s Gatsby Foundation, created a number of University Challenge Seed Funds in 2000–02 (Rainbow followed immediately after) that are generally regarded as having been very successful. They kick-started over 250 new companies based on University research, stimulating (on average) £9 of further investment for every £1 invested by the Seed Funds. They have created over 1,500 jobs, the great majority highly skilled, and have attracted technical and sales partnerships from companies around the globe.

11. However, Government placed multiple constraints on their operation and failed to deliver the right level of continuing support, so that many of these funds are now inactive, unable to support the current generation of university spin-outs. The key problem was undercapitalisation. Most funds were in the £4 million to £8 million range, and their investments were capped at £250,000 each (belatedly raised to £500,000 in 2009). There is widespread agreement within both the University and venture capital communities that the right level of funding would be around £20 million to £40 million per fund (over 10 years) (depending on the size of science base they need to serve) and that investment caps should be removed altogether or at least at a much higher level of at least £1 million.

12. University commercialisation structures have moved on in the past decade and we would not advocate an identical scheme to that of 10 years ago. As outlined above, the most obvious changes would be to have a smaller number of larger funds each serving a wider base. It may also be sensible to extend the remit somewhat beyond the university and PSRE boundaries to allow technology-led SME’s to access investment. Particularly if the TSB grant programmes could be encouraged to work better alongside such funds, a revitalisation of the University Challenge Seed Fund programme along these lines would bring massive beneﬁts to the translational effort.

Tax-incentivised investment

13. The current EIS scheme is a very blunt instrument when looking to channel funds to the commercialisation area. It is not widely appreciated that the great majority of EIS funding does not go to high tech investment but rather ends up in the services ﬁeld. High tech investment has fallen from 28% of the total in 2005–06 to 21% in 2009–10, whilst funding for services has gone from 30% to 54%.

14. Whilst the increase from 20% to 30% in EIS tax relief is welcome, other proposed changes to the EIS scheme will allow investment in much larger, later stage and more proﬁtable companies than currently. This therefore increases the competition faced by early stage companies for EIS investment, with the likely outcome a further fall in the percentage secured by early stage technology companies. We would suggest consideration be given to a reﬁnement of the current 30% EIS tax relief, whereby a higher rate of relief (eg 35%) is offered to early stage high tech companies and a reduced rate (eg 25%) to others.

15. The imminent SEIS scheme is to be welcomed, but we would suggest increasing the limit per company from £150,000 to £300,000. In our broad experience, a minimum sensible initial capitalisation for any company is of the order of £300,000. £150,000 is something of a “no-man’s land” ﬁgure. A few years ago there would have been a good chance that a seed fund would step in and match it with another £150,000 but there are now so few seed funds operating that this is more unlikely than likely to happen. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Venture Capital Investment 16. It seems likely that VC fund managers will increasingly look to the EIS market to raise funding. Institutional support for Venture Capital has been hard to ﬁnd for several years and, in spite of improving results from VC funds, this trend does not look likely to change markedly. The EIS scheme, with its tax breaks to help compensate for the additional perceived risk in technology investment, seems to offer at least a partial answer for many. However, the traditional VC fund structures and investment instruments sometimes clash with EIS rules, and there is work to be done on ensuring that an optimal outcome is achieved. We therefore echo the BVCA comments on HM Treasury’s consultation paper of last summer regarding the need to look at how best to harmonise EIS rules with tried and tested venture funding patterns.

Institutional investment in venture capital 17. We believe that some form of radical fund-raising is required to revitalise the early stage technology investment sector. The “Future Technology Fund” (previously the UK Innovation Investment Fund) struggled to raise external money and has made few investments to date, illustrating the difﬁculties faced by the sector. It seems inevitable that the bulk of any such fund will have to come from state coffers, something that in the current climate seems difﬁcult but £2–3 billion would kick start a serious effort to fund the next generation of technology companies.

Q7. What other types of investment or support should the Government develop? 18. We encourage the committee to again consider whether a portion of research funding (from the Research Councils) should be allocated to commercialisation or development (possibly distributed through seed funds). We would not expect a single ﬁgure to be widely accepted as “right” given the widespread differences in costs between bringing a piece of software to market and developing, say, cancer vaccines. We would, however, strongly suggest that there be a debate with the aim of asking each research body to set a target to be spent on commercialisation. 19. At the European level we understand that consideration is being given in the planning of future Framework Programmes to allow funding of Seed/Translation and Venture funds from the next FP. This is to be strongly encouraged, and it is to be hoped will also lead to more effective linkages between FP grant programmes and the investment sector. 20. The Government could assist in developing other kinds of investment or support by facilitating increased accessibility to overseas institutional investors. 21. Increasing recognition and rewards for academics’ commercial engagement could help to rebalance the current emphasis towards publication of papers. We also believe it would be helpful to consider a harmonised “rewards for inventors” scheme for all publicly-funded research, rather than the different local arrangements for universities and PSREs. 22. State Aid is sometimes cited as an obstacle to enhanced support. At the European level it must be worth a further effort to raise the de minimis level substantially to, say, £5 million per company. At a time when economic growth is THE priority for Europe (and when subsidies are in any event being cut for budgetary reasons), it simply cannot make sense for anti-competition regulations originally drawn up to stop Italy’s miners and steel industry being subsidised to get in the way of targeted economic support for the young companies that everyone agrees will provide the future growth. If there is nervousness at such a radical relaxation, it could be time limited—perhaps till Europe returns to sustained growth. 23. Declaration of interest: Midven manages the Rainbow Seed Fund (and other funds which invest in technology businesses) for which it receives a management fee and a share of proﬁts. 24. The opinions expressed in this submission are those of Midven, the manager of the Rainbow Seed Fund, and not necessarily those of the partners in the Fund. February 2012

Written evidence submitted by The Academy of Medical Sciences Summary 1. The Academy of Medical Sciences welcomes the opportunity to contribute to this inquiry into bridging the “valley of death” and improving the commercialisation of research. One of the Academy’s strategic priorities is to link academia and industry. Our elected Fellowship includes some of the UK’s foremost experts in medical science who have contributed to this response and who would be happy to provide oral evidence to this inquiry. The Academy’s response focuses on medical research as this reﬂects the expertise of our Fellows. 2. The Academy commends the Government’s strong commitments to position the UK as the best place in the world to translate scientiﬁc discovery into clinical use and bring medical innovation to patients more cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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quickly, driving economic growth in the process.100, 101, 102, 103 However, we believe that there is an opportunity for the Government to go even further in supporting the commercialisation of life sciences research. 3. The biomedical sector is one of the most significant and productive in the UK with great potential to increase jobs, enable sustainable economic growth and increase tax revenue. Medium-sized companies are a vital part of the life sciences industry due to their ability to perform early phase translational research efficiently with a portfolio of products and programmes, maximising the impact of experienced scientific and managerial staff, and enabling improved decision-making on commercial opportunities. However, there are currently too few medium life science biotechnology companies operating in the UK. A major barrier is a lack of funding from public markets that too often perceive investment in biotechnology as too long-term and too risky. Increasing the opportunities of small biotechnology companies to grow into medium-sized enterprises can fill this gap in the UK biomedical sector. 4. The delivery of increased commercial output from basic research and the growth of the biotechnology sector relies on the availability of financial investment in translational research, and importantly on the broader policy framework within which new innovations are researched and developed. Currently both these areas present opportunities for improvement if we are to match international competitors.

5. Proximate measures to strengthen translational research — Increase the financial support available to translational academic research and innovative businesses through initiatives such as the Biomedical Catalyst Fund and the Technology Strategy Board. — Create tax incentives to encourage venture capital investment in innovative businesses such as consortium tax relief or capital gains tax deductions. — Allow adaptive licensing in combination with stratified medicines, decreasing the time to revenue generation to promote investment in translational research. — Encourage universities to work together to provide a unified and efficient approach to technology transfer that will allow intellectual property to be appropriately valued to help commercialisation.

6. Improving the innovation ecosystem — Improve the valuation of innovation during early translational research, and during uptake by expanding National Institute for Health and Clinical Excellence (NICE) evaluations beyond quality-adjusted life years (QALYs) to include the wider economic and social impact of implementation. — Promote interdisplinarity to support new areas of research at the forefront of idea generation. — Facilitate career mobility to allow the sharing and dissemination of knowledge and skills throughout academia, industry and the NHS. — Strengthen collaborations between the academia, industry and the NHS by continuing to support and grow Academic Health Science Networks and open innovation technology hubs. — Streamline research regulation to reduce costs and bring medicines to patients more quickly.

Building the Life Science Industries 7. Recent Government initiatives such as the Life Science Strategy, NHS Innovation strategy and Innovation and Research Strategy give important support for the commercialisation of life sciences research.104, 105, 106 , 107 Measures include the creation of the Biomedical Catalyst Fund, for small but economically important biotechnology companies, and efforts to foster productive links between the NHS, industry and academia, through the setting up of a Cell Therapy Technology and Innovation Centre. The Academy welcomes these initiatives in addition to previous policies such as the protection of the medical and health research budgets in the recent comprehensive spending review, translational research partnerships, and the establishment of the 100 Prime Minister David Cameron (2011). Speech on life sciences and opening up the NHS www.number10.gov.uk/news/pm-speech-on-life-sciences-and-opening-up-the-nhs/ 101 Department for Business, Innovation and Skills (2011). Strategy for UK Life Sciences. www.bis.gov.uk/assets/biscore/innovation/docs/s/11–1429-strategy-for-uk-life-sciences.pdf 102 Department for Business, Innovation and Skills (2011). Innovation and Research Strategy for Growth. www.bis.gov.uk/assets/biscore/innovation/docs/i/11–1387-innovation-and-research-strategy-for-growth.pdf 103 Department of Health (2011). Innovation Health and Wealth, Accelerating Adoption and Diffusion in the NHS. www.dh.gov.uk/ prod_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_131784.pdf 104 Department for Business, Innovation and Skills (2011). Strategy for UK Life Sciences. www.bis.gov.uk/assets/biscore/innovation/docs/s/11–1429-strategy-for-uk-life-sciences.pdf 105 Department of Health (2011). Innovation Health and Wealth, Accelerating Adoption and Diffusion in the NHS. www.dh.gov.uk/ prod_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_131784.pdf 106 Department for Business, Innovation and Skills (2011). Innovation and Research Strategy for Growth. www.bis.gov.uk/assets/biscore/innovation/docs/i/11–1387-innovation-and-research-strategy-for-growth.pdf 107 Academy of Medical Sciences (2011). Submission to the 2011 innovation and research strategy. www.acmedsci.ac.uk/download.php?ﬁle=/images/publication/Contribu.pdf cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Office for the Strategic Coordination of Health Research (OSCHR) and the National Institute of Health Research (NIHR). 8. The biomedical sector is one of the most significant and productive sectors in the UK.108, 109 The success of the biomedical sector in the UK is underpinned by world class academic researchers, innovative pharmaceutical and biotechnology companies, internationally renowned universities, uniquely strong medical research charities, and the NHS—one of the largest single healthcare systems in the world. 9. For academic research to be translated into commercial application new innovations must be developed and tested in a clinical setting. This has in the past often been performed by large pharmaceutical companies able to invest the considerable sums required, which can be upwards of £1 billion for each new drug.110 The development of new medical innovations is a long-term enterprise that can take between 11 and 14 years, during which time there is a high attrition rate of new innovations due to failure in clinical trials.111 In addition there are fewer new therapeutic agents in the pipeline and many current therapeutic agents due to come off patent. This has led many phermaceutical companies to adopt a new model of open innovation. By forming partnerships with small biotechnology companies, the NHS and academia, a culture of innovation is being created that helps to build upon the UK’s strengths in academic research, increasing commercial output. 10. In the US, medium-sized biotechnology companies, such as Amylin Pharmaceuticals and Gilead, form a vital part of this innovation ecosystem. By making more efficient use of experienced scientific and managerial staff with sufficient resources to support innovation, these companies efficiently perform early phase translational research with a portfolio of products and programmes and enable improved decision-making on commercial opportunities. This leads to sustainable economic growth, job creation and increased tax revenue. 11. Small biotechnology companies face many hurdles before they can grow into medium sized firms. At each stage of the lengthy drug development process more investment is required, diluting the value of previous investments. The process of acquiring venture capital investment is often difficult and many businesses fail at this stage, producing the so called “valley of death”. 12. In the UK the difficulties in acquiring investment often leads to trade sales to large pharmaceutical companies, allowing continued development of innovations and investors to receive some financial return. While this route has many strengths, there should also be more opportunities for small firms to grow into independent medium-sized companies. These will promote better return on investments in small biotechnology companies, and encourage re-investment that will boost economic growth. 13. Without the opportunity to grow in the UK, companies and their ideas will move abroad for commericalisation. One example of this phenomenon is research performed at the University of Oxford during the late 1980s leading to the discovery of the hormone amylin. This was commercialised in San Diego, USA, by Amylin Pharmaceuticals where a synthetic form of amylin was developed and is now used in the treatment of diabetes. 14. We recommend both proximate measures to increase the funding available to bridge the “valley of death” as well as measures that address the broader aspects of the innovation ecosystem.

Proximate Measures to Strengthen Translational Research 15. Outlined below are four proximate measures to strengthen the commercialisation of research.

Incubate innovations in academia and support early translational research 16. Our universities are a unique strength and an important source of compounds and technologies that present commercial opportunities.112 To reach their full potential universities need substantial public programmes to allow them to incubate innovations for longer, and to help support innovative companies during early translation. This will allow new spin-out companies to have a more developed product for commercialisation, increasing the ability of those firms to attract investment and the likelihood that new innovations will reach the market. In the long-term such support will provide substantial returns through health benefits associated with the use of innovative therapeutic agents, increased tax revenues, jobs and sustainable economic growth. A number of schemes already exist to help achieve this goal. These include the Medical Research Council’s (MRC) Developmental Pathway Funding Scheme, the newly announced Biomedical Catalyst Fund and initiatives by the Technology Strategy Board (TSB). However, there are significant opportunities to increase the magnitude of such schemes in line with the scale of investment in countries such 108 Academy of Medical Sciences (2010). Biomedical research: a platform for increasing health and wealth in the UK. www.acmedsci.ac.uk/download.php?file=/images/project/Biomedic.pdf 109 Department of Business, Innovation and Skills (2010). Life science in the UK—economic analysis and evidence from “Life Sciences 2010: Delivering the Blueprint”. www.bis.gov.uk/assets/biscore/economics-and-statistics/docs/10–541-bis-economics-paper-02 110 Paul S, et al (2010). How to improve R&D productivity: the pharmaceutical industry’s grand challenge. Nature Reviews Drug Discovery 9, 203–214 111 Ibid. 112 Academy of Medical Sciences (2011). Submission to the 2011 innovation and research strategy. www.acmedsci.ac.uk/download.php?file=/images/publication/Contribu.pdf cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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as the USA. Moreover, funds available for translation should be used to support the best translational activities regardless of whether they involve the private sector, public sector, or cross-sector collaboration.

Provide financial incentives for translation 17. In a global market, it is vital that fiscal incentives are in place to support UK biotechnology firms and ensure they attract a significant share of pharmaceutical and risk capital investment.113 Measures that promote investment from “high-value” individuals and the corporate venture funds of “big pharma” are crucial and would increase risk capital flow into this vital sector of the economy. For example, the establishment of a patent box is leading to substantial investment by pharmaceutical companies such as GSK and many in industry have found R&D tax credits to be beneficial.114, 115 18. One fiscal incentive is consortium relief that allows a consortium of corporate investors to offset the losses of the small business against their taxable profits. Consortium relief in the UK would encourage earlier interactions between biotechnology and pharmaceutical companies and would provide a significant fiscal incentive to encourage this sector to thrive. Another option might be deductions on capital gains tax on investment in biotechnology companies.

Adaptive Licensing 19. The development of novel therapeutic agents is a long-term and expensive endeavour, particularly due to the high costs associated with late stage clinical trials, which can disincentivise investment in biotechnology companies. Adaptive licenses that allow new drugs in NHS priority areas to be made available to NHS patients following preliminary safety studies and proof of efficacy will generate much needed revenue for companies earlier and provide benefits for patients more quickly. This can then aid funding for continued development of these therapeutic agents for a wider population. Stratified (personalised) medicines also offer a particular opportunity for the application of adaptive licensing.116

Technology transfer 20. The transfer of intellectual property out of universities into industry is a vital step in the commercialisation of research.117 This can be achieved by collaborating with industry on research with intellectual property rights negotiated at the outset, in addition to forming intellectual property right agreements with companies on innovations that have already been developed by university based research. While technology transfer has signiﬁcantly improved over the past decade, many opportunities still exist to increase university performance in this area. 21. To perform technology transfer effectively, expertise in licensing negotiation, spinout creation and market research is required, in addition to an understanding of the value of the intellectual property, and knowledge of the costs and risks involved in product development.118 By promoting an increase in the ability of universities to work together to form a uniﬁed framework of technology transfer, with investment to promote university capacity in these areas, the commercialisation of research will be improved.

Improving the Innovation Ecosystem The valuation of innovation and the importance of procurement 22. The industrial model of drug development often pays too little attention to the way in which medicines might be used in the clinic or the community. Early evaluation of the clinical, economic and social value of potential therapeutic agents should occur during preclinical stages and will ensure that funding for translational research goes to those areas most likely to fulfil unmet need and produce sustainable economic returns. 23. Opportunities for improved valuation of innovation are also present at the latter stages of the bench to bedside research pathway.119 NICE evaluation of new therapeutic agents for adoption by the NHS are vital for ensuring value for money, and these evaluations should support innovation. One way to achieve this goal could be to extend the scope of NICE evaluations beyond QALYs to include the wider economic and social impact of implementation. This will allow the substantial expenditure on procurement made by the NHS to reward commercial investment in research and developement, and expand business innovation. 113 Ibid. 114 GlaxoSmithKline (2010). Government patent box proposals “transform” UK attractiveness for investment. www.gsk.com/media/ pressreleases/2010/2010_pressrelease_10124.htm 115 Department for Business Innovation and Skills (2006). Applying for R&D tax credits—case studies of companies’ experiences. www.bis.gov.uk/assets/biscore/corporate/migratedd/publications/f/file36112.pdf 116 Academy of Medical Sciences FORUM (2007). Optimising stratified medicines R&D: addressing scientific and economic issues. www.acmedsci.ac.uk/download.php?file=/images/event/stratifi.pdf 117 Lambert R (2003). Lambert Review of Business-University Collaboration. London, HMSO. http://www.hm-treasury.gov.uk/d/lambert_review_final_450.pdf 118 NESTA (2012). After the Life Sciences strategy: managing science-based R&D collaborations. www.nesta.org.uk/events/assets/ events/after_the_life_sciences_strategy_managing_science-based_rd_collaborations 119 Academy of Medical Sciences FORUM (2007). Optimising stratified medicines R&D: addressing scientific and economic issues. www.acmedsci.ac.uk/download.php?file=/images/event/stratifi.pdf cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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24. The cost of healthcare in the UK has increased since the early 1990’s due to factors such as the ageing population, increasing patient expectations and rising rates of chronic disease.120 However, the expenditure on medicines has actually decreased since 1997 in proportion to the total NHS expenditure, and is now less than 10% of the total NHS budget.121 Analysis by the Milken Institute showed that the lost economic output caused by the presence of chronic diseases is considerably higher than the cost of treatment.122 This suggests that increased spending on innovative technologies through procurement that help to reduce the disease burden on society can have substantial economic beneﬁts. One of the challenges is that the costs of new products are added on top of those which they would replace, thereby providing economic disincentives to the purchase of new innovations.

Interdisciplinarity 25. There is growing recognition that the challenge of the commercialisation of research is only going to be solved with an interdisciplinary approach. Cross-fertilisation of traditional academic disciplines from a wider range of relevant research areas must be encouraged, as it is often at these intersections that innovative research is initiated. For example, interactions between social science, economics and drug development could allow models of human behaviour to be further developed that facilitate patient adherence to prescription regimes. Moreover, a deeper understanding of the human biology that underpins health and disease would help better identify which new medicines might be successful. By encouraging the training of scientists able to span disciplines, innovation will be advanced.

Career Mobility 26. Highly skilled individuals are UK medical science’s most valuable resource and play a significant role in attracting commercial activity and investment.123 We must nurture and develop a pool of talented bioscience professionals—across the healthcare, academic and private sectors—who are equipped with the full range of skills needed to advance understanding and develop novel interventions and diagnostics for major diseases. This will aid researchers in acquiring the necessary entrepreneurial and management skills required to be able to commercialise academic research, and facilitate the sharing and dissemination of knowledge in the innovation system. Opportunities for promoting flexible collaboration across sectors should be seized to develop a biomedical workforce with the skills to move between and bridge sectors, these include:124 — Fostering interactions between academia, industry and the NHS such as short-term exchanges, secondments and mentoring across sectors. — Promoting flexibility in career options, such as mutually agreed indicators of individual success that are shared across academia, industry and the NHS and mechanisms for clinicians to maintain clinical registration while in industry. — Raising awareness, such as “industry days” at universities and the extended provision of open days at companies. — Gaining a greater understanding of the UK biomedical research workforce profile by collecting and disseminating more data on workforce numbers to allow a more strategic appraisal of mobility between sectors.

Collaboration 27. In the UK’s world class universities, hospitals and companies we have the individual building blocks for a flourishing “life science ecosystem”.125 The future of this sector lies in putting these elements together and collaborating to share expertise, skills and resources. One major opportunity to increase collaboration, set out in the NHS Innovation Strategy, are Academic Health Science Networks that bridge academia and the NHS.126 Supporting and growing these Networks will help them act not only as a hub for innovation, but as a framework for applied health research, diffusion of evidence and research-informed education. 28. In other countries, hubs for biotechnology and innovation have developed largely in clusters where a critical mass of academic scientists and institutions fuel a small company sector that ultimately supports the large pharmaceutical companies. The best international examples include the Bay Area in California, the San 120 Scarborough P, et al (2011). The economic burden of ill health due to diet, physical inactivity, smoking, alcohol and obesity in the UK: an update to 2006–07 NHS costs. Journal of Public Health 33(4), 527–535. 121 ABPI (2011). Did you know? Facts and figures about the pharmaceutical industry in the UK. www.abpi.org.uk/_layouts/download.aspx?SourceUrl=http://www.abpi.org.uk/our-work/library/industry/Documents/ Did%20you%20know_Jan11.pdf 122 The Milken Institute (2007). An Unhealthy America: The Economic Burden of Chronic Disease. www.milkeninstitute.org/healthreform/PDF/AnUnhealthyAmericaExecSumm.pdf 123 Academy of Medical Sciences (2011). Submission to the 2011 innovation and research strategy. www.acmedsci.ac.uk/download.php?file=/images/publication/Contribu.pdf 124 Academy of Medical Sciences (2007). Careers for biomedical scientists and clinicians in industry. www.acmedsci.ac.uk/download.php?file=/images/publication/Careersi.pdf 125 Academy of Medical Sciences (2011). Submission to the 2011 innovation and research strategy. www.acmedsci.ac.uk/download.php?file=/images/publication/Contribu.pdf 126 Department of Health (2011). Innovation Health and Wealth, Accelerating Adoption and Diffusion in the NHS. www.dh.gov.uk/ prod_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_131784.pdf cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Diego cluster and the cluster around Boston. Successful clusters are characterised by a critical mass of academic and commercial scientific activity, a high percentage of the local population being degree-qualified, an exchange of personnel and skills across the academic and industry sectors and a supportive legal, financial and capital infrastructure. One important way to support the development of hubs is by increasing the funding available to set up open innovation centres, such as the Stevenage Bioscience Catalyst campus funded by TSB and GlaxoSmithKline. This new facility provides the infrastructure for small and medium enterprises to form a base that will facilitate partnerships with larger pharmaceutical companies allowing resources and skills to be shared.

Regulation 29. An overly complex regulatory and governance environment can undermine the innovation ecosystem, delay the time to revenue generation, increase costs and deter commercial investment. The Academy welcomes the creation of the Health Regulatory Authority (HRA) that aims to create a unified approval process and to promote proportionate standards for compliance and inspection as recommended in the Academy’s 2011 report “A new pathway for regulation and governance of health research”. However, to fully realise the opportunities offered by streamlined regulation it will be important to: 127, 128 — Provide a clear and comprehensive vision of the functions of the HRA, its role in managing a coordinated regulatory and governance pathway, and how it will work alongside other relevant bodies. — Ensure the HRA works closely with the Medicines and Healthcare Regulatory Authority (MHRA) to improve standards of compliance and inspection. — Provide clarification on how the process by which NHS Trusts approve research studies will be streamlined in such as way as to achieve the required efficiency gains and ensure a single, consistent, efficient process for the NHS as a whole. — Provide the HRA with powers to monitor the impact of changes to the regulatory pathway on approval times and ensure the UK becomes a more attractive location for academic and commercial research. This should include losely monitoring the impact of new metrics for R& D permissions for NIHR funding and NIHR Research Support Services. We are grateful to the Fellows of the Academy of Medical Sciences and experts for contributing to this response, which was approved by Professor Sir John Tooke PMedSci on behalf of the Academy of Medical Sciences’ Council.

Declaration of Interests Many of the Academy’s Fellows and experts who contributed to this response are involved directly or indirectly with academia, life sciences industries and the NHS. Further details are available upon request.

The Academy of Medical Sciences The Academy of Medical Sciences promotes advances in medical science and campaigns to ensure these are converted into healthcare beneﬁts for society. Our Fellows are the UK’s leading medical scientists from hospitals and general practice, academia, industry and the public service. The Academy seeks to play a pivotal role in determining the future of medical science in the UK, and the beneﬁts that society will enjoy in years to come. We champion the UK’s strengths in medical science, promote careers and capacity building, encourage the implementation of new ideas and solutions—often through novel partnerships—and help to remove barriers to progress. February 2012

Written evidence submitted by Cambridge Environmental Research Consultants Ltd Introduction 1. CERC is a Company (currently 25 employees) for environmental research and consulting set up in 1985 to utilise research done at the Departments of Applied Mathematics and Theoretical Physics (DAMTP), Engineering, and Earth Sciences at the University of Cambridge, and at E.P.A in USA (where Prof. Hunt was a consultant). It expanded significantly when it took on a key job of developing software for air pollution dispersion suitable for the main UK government agencies (UKAEA, Met Office) and companies (eg National Power) through the coordination of the (then) National Radiological Protection Board in 1990. The aim of this software was to make use of available environmental, meteorological and GIS data, to provide air pollution prediction systems to be used by non-experts. 127 Academy of Medical Sciences (2011). A new pathway for the regulation and governance of health research. www.acmedsci.ac.uk/download.php?file=/images/project/130734957423.pdf 128 Academy of Medical Sciences (2011). Submission to the 2011 innovation and research strategy. www.acmedsci.ac.uk/download.php?file=/images/publication/Contribu.pdf cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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2. The intellectual property of the software (ADMS) was retained by CERC. The software was subsequently developed in 1995, through internal investment, for use by local authorities for air pollution planning, permitting and forecasting. Some development contracts were provided by DEFRA, and Dr Carruthers sits on the advisory body of DEFRA for air pollution (AQEG). The software serves as a basis from providing consulting services by CERC and is used by other UK companies (e. g. AEA Technology). It is also used by universities for teaching.

3. Research from UK and overseas institutes was used to develop the software further to include such aspects as atmospheric chemistry, use of meteorological forecasts and satellite data for air quality forecasts, dispersion from trafﬁc and aircraft exhausts, wind energy prediction, planning urban environments and atmospheric pollution associated with carbon capture and storage. The software is accepted and used all round the world. It is formally approved by China’s Ministry of the Environment and the US-EPA (as an alternate method).

4. The marketing of the company is through its website, scientiﬁc publication and presentation at conferences, etc. The company has made many foreign visits and has set up a small subsidiary in China. No funds are available in the UK for developing technology for exports, unlike our partner organisation in France. US government agencies are also very active in this area.

5. The UK Government does not issue any formal approval of any commercial environmental software, though it acknowledges its use (eg by Environment Agency), nor does it state the standards it expects, which is an important way to encourage high level commercialisation. The Cabinet Ofﬁce did however issue a statement describing the AIRTEXT air pollution forecasting system in Jan 2011, as a good example of the use of data and IT systems. This joint project developed by CERC with ESA and European government and local authority agencies sends messages to people who have breathing difﬁculties when the air pollution in their locality is high. It is advertised on London buses. Because it is based on fundamental principles of meteorology and dispersion it can be applied in other cities; it is currently use in Budapest and Vienna.

6. But the Government did not mention CERC in its press statement which developed and still operates the system which is based on ADMS. (Many small companies and even ministers comment that UK civil servants are reluctant to name UK companies if they are small, while openly supporting and publicising the big companies such as those in banking, oil and aerospace).

7. The UK Department for Transport instituted a comparison between the UK ADMS code and the US code for air pollution at airports, and concluded that the UK system was more accurate and ﬁt for purpose for the Project for the Sustainable Development of Heathrow Airport (PSDH). This was announced in Parliament, though the company that developed the UK code, CERC, was not mentioned.

Answers to Questions

A. Difﬁculties of funding

8. There are problems of uncertainty about UK and international demand for technological products, uncertainty about their competitiveness and about the level of UK government support for new high tech products. Since 70–80% of the market for high tech projects are governmental (especially environmental/ energy products), the funding depends on conﬁdence in government policies and long term intentions. Where new developments are funded and adopted by UK government for use in the UK, there is almost no effort to promote these abroad (as many small companies from the UK have commented).

9. Indeed the UK Environment Agency is not permitted by Defra to promote UK environmental technology and products, unlike the Environmental Agency of the USA, which for example has an ofﬁce in Beijing. So when CERC with ESA was invited to provide air pollution forecasts in Beijing for the Olympics-a considerable achievement since the US was not invited- there was no publicity or help provided by the UK government.

10. Prof Hunt is a former Chief Executive of the Met Ofﬁce; as with other chief executives of agencies it was not part of his job description to promote UK environmental technology though after requests from the UK private sector he did involve UK companies in UK activities at the UN agency WMO- again an action where the USA government agencies are engaged much more vigorously).

11. There has been a decline in the numbers of big government and industrial labs with clear motivation (eg Shell, CEGB, British Gas, Water Research Council etc.) who used to have large R and D budgets for the application of research. They often provided contracts to small high tech companies, and funded applied research projects including those in Universities. Other countries continue to have such major centres. Also the applied research budgets of Government Departments have declined (over the past 20 years). Although Research Council and Royal Society budgets have increased, their method of funding—with academic referees showing little understanding of the contributions of commercial companies to applied research—is not generally suitable for developing commercial projects. EU research revenue projects are managed more suitably for private companies, for example using referees who seem to understand about applied research and the contribution of small companies in delivering products based on research. (CERC had one good experience with a EPSRC project involving several universities that certainly led to practical as well as good research results). cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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12. The US government funds “challenge” projects to apply US or foreign based research-including one of the papers of Prof. Hunt (The MoD in the UK has done this for some critical problems, but the approach could be expanded). 13. Another area of difﬁculty for small companies is the trend to increasing length and complexity of tender documentation and requirements for references of very recent work above speciﬁed value thresholds. This greatly favours larger established companies even when they are not the best for the tasks required.

B. Difficulties in commercialising research 14. Environmental services are provided by a mix of commercial and publicly funded organisations which varies between countries. This creates some difficulties in the commercialisation of research. For example the software for air pollution processes is developed and issued freely by the US Government. This is then sold on as commercial packages by US and other companies, including some in the UK. Inevitably it is cheaper than products which have to be developed commercially. So CERC has to compete with the US AERMOD code-which it is happy to do so on scientific and technical grounds. The US government publicises its environmental software (including that for weather forecasting) and openly provides information about its own and other software on its web sites, so that users can choose. More could be done by the UK to recognise this situation and to support UK public and private organisations engaged in environmental technology. 15. The UK Government has reduced its funding of base levels of research in commercial (formally public) environmental organisations. By comparison Dutch and Danish Governments have funded their hydraulic and wind energy labs at about 10% of their turnover. They are leading in this research, and they now dominate the world market for technical consultancy and collaborative projects with foreign research bodies and governments. 16. Academic Research Council grants or short period DTI, TSB etc. research projects do not take the place of long standing applied research laboratories, which also play a role in the development of small companies. Indeed where they have existed in the UK some have been closed down such as the NE wind energy centre. The policies of the present UK Government for technology centres announced by the present government may provide some stimulus to commercialisation of research, but they do not have the same focus or continuity or labs based on a specific industrial objective. 17. Another critical influence on commercialising research is the policy about data availability and the commercial role of government bodies. In Europe (including in UK) environmental data from Government bodies (despite the Aarhuis Conventions) is charged at rates much higher than equivalent data in the USA. That is why, it is argued, there are many more US companies. Indeed in Europe government agencies compete with Universities and private companies for commercial research funding, including E.U. projects. Instead these agencies should be encouraged to work with UK high tech companies. This would not only lead to more rapid commercialisation of the research coming from Universities and government/research laboratories, but would enable the UK products and services to be more widely exported. Exporting by UK government agencies is often difficult. It seems to many companies that HM Treasury (like Finance Ministries in other European countries) is deliberately ambiguous as to whether it wants to encourage the US model of free data and no commercialisation of agencies, or the Colbert model of government commercialisation leading to direct rather than indirect revenues to the state. 18. These ambiguities do not help small companies working with or in competition with government and university departments engaged in commercial services. February 2012

Written evidence submitted by BP plc Summary 1. There are many ways in which research creates value for the UK, of which “commercialisation” is but one. 2. The industrial policies pursued by countries—together with their fiscal regimes, IP policies and university funding programmes—influence whether, where and how commercialisation can occur. UK resources should be focused on securing leadership in existing and new global multi-billion dollar markets. 3. Commercialisation carries significant risk and is only likely to occur where companies can justify the cost. In the US, for example, Federal and State governments mitigate the risks of financing commercialisation by contributing to demonstration funding. 4. The UK’s world leading academic base is a key driving force for global innovation. However the UK has yet to realise the full value of this legacy. 5. Multinational companies locate their internal research activities where they can compete for the best students and conduct research cost effectively. They seek out, on a global basis, excellence in universities for collaborative research. There are few if any technical barriers to the commercialisation of valuable discoveries; and financing commercialisation is a mature capability. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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6. Small and Medium Enterprises are much more limited in their scope and capabilities, and in particular their ability to raise finance for activities carrying high risk, such as commercialisation. 7. The following proposals would enable both the commercialisation of UK research and retention of the associated value in the UK: (i) Focus resources on the best UK universities. Provide adequate support to UK world-class universities to maintain their global standing and ability to compete for talent. (ii) Pick the right races. Focus UK resources on securing leadership in global multibillion dollar markets drawing on the expertise of UK world-leading companies and universities. (iii) Create effective pathways from research through to deployment of commercial products. Support efficient interfaces between academia, public and private sectors. (iv) Support SME growth. Increase access to lower cost finance. (v) Implement policy to support commercialisation. Target policy according to sector and technology maturity. (vi) Focus on IP exploitation. Avoid a system of IP over-protection to the detriment of value creation for the UK. (vii) Capture value from UK R&D. Retain value through inward investment, royalties coming back to a UK entity or job creation etc. (viii) Influence EU priorities. Compete for share of EU funding for research, development and demonstration consistent with the quality of UK research base.

Introduction 1. Value from research accrues to the UK in many ways, of which “commercialisation” is but one. Others include: — the capacity of the UK to absorb valuable knowledge from around the world; — the provision of technical expertise into UK-domiciled industry; — the creation of UK SMEs or subsidiaries, and jobs, based on inventions; — competitive advantage of UK domiciled industry; and — license fees from the use of intellectual property. 2. In responding to the inquiry, we have considered steps that would enable both the commercialisation of UK research and retention of the associated value in the UK. We have highlighted in the Summary above seven main proposals, which are now discussed in turn.

(i) Focus resources on the best UK universities “Provide adequate support to UK world-class universities to maintain their global standing and ability to compete for talent.” 3. The UK science and research base is world class. In light of current restraints on government spending, it is more important than ever that UK university funding should focus on excellence. This will enable the best UK universities to continue competing for the most talented people globally. Government support to maintain this free ﬂow of talent is critical as the UK faces increasing competition from other countries as they invest heavily in their R&D base. 4. BP spends 40% of its total research & development funds in the UK and has three major research centres in Sunbury, Pangbourne and Hull. The excellence of UK academic research is a key factor in determining why companies like BP choose to site their R&D activities in the UK. 5. BP invests over £25 million per annum in R&D programmes with UK universities, with the greatest amounts going to Cambridge, Imperial, Manchester and Oxford. The UK university sector is a key resource for recruitment, with BP sourcing 25% of graduates globally from UK universities. The 2012 UK graduate intake has increased 50% compared to 2011.

(ii) Pick the right races “Focus UK resources on securing leadership in global multibillion dollar markets drawing on the expertise of UK world-leading companies and universities.” 6. UK public resources should be focused on securing leadership in global multi-billion dollar markets where the UK can attract and retain the high value elements of the supply chain. The recent TSB announcement on the establishment of the ﬁrst tranche of Catapult Centres in high value manufacturing, cell therapy, offshore renewables and satellite applications is consistent with this approach. 7. The UK has world-leading companies with an extensive track record of achievement across multiple sectors including aerospace, communications, defence, oil & gas and pharmaceuticals. This industrial science and engineering expertise should be leveraged to accelerate the creation of new UK enterprises. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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(iii) Create effective pathways from research through to deployment of commercial products “Support efficient interfaces between academia, public and private sectors.” 8. Technology commercialisation requires “pump priming” to ensure a continuous flow of options from research to deployment. The TSB plan to support mission-oriented research centres in emerging technologies such as synthetic biology, energy-efficient computing, energy harvesting and graphene is a positive step in supporting this. 9. BP has growing experience and success in creating mission-oriented research institutes in Cambridge (BP Institute for Multiphase Flow), Tsinghua (the Clean Energy Centre, focused on Chinese energy policy) and the Energy Biosciences Institute (in Berkeley and Illinois). 10. Public-private partnerships have a key role to play in accelerating technology demonstration. BP is a founding member of the Energy Technologies Institute (ETI), a public private partnership in the low carbon energy area. The insights gained inform business strategy and policy and de-risk technology through shared investment and IP exploitation.

(iv) Support SME growth “Increase access to lower cost finance.” 11. SMEs need additional assistance, in the form of lower cost financing to support high risk activities such as commercialisation. This entails longstanding regulatory frameworks that foster market conditions for investment, coupled with public finance mechanisms that create pathways for concept development. Leveraging large government procurement budgets in areas such as defence and health are obvious options. The plans to extend the TSB Small Business Research Initiative programme, as outlined in the BIS Innovation and Research Strategy for Growth, is a small but significant step in this direction. 12. In BP’s experience, partnerships between large corporates and SMEs are mutually beneficial. Companies like BP gain first hand insight into operating in new technology areas and markets. SMEs benefit from accessing the skills base in large organisations in areas such as marketing and project, commercial and HSE management. 13. Clustering of businesses around UK universities yields disproportionate benefits with SMEs able to attract the critical mass required to interact with academic and business partners. One example, which BP is familiar with, is the business cluster around Cambridge which has witnessed the creation of a number of significant companies. Such SMEs with high growth probability—so called gazelles—are a vital engine for the UK’s future economic prosperity.

(v) Implement policy to support commercialisation “Target policy according to sector and technology maturity.” 14. Commercialisation risks vary by sector, depending largely on confidence in government policy, time to market and capital intensity. Support for technology demonstration should be tailored by sector. 15. The energy industry requires companies to take significant capital risks over a number of years before receiving a return on investment. If they are to do this, they need to have confidence that the appropriate frameworks are in place to support technology development through its different phases of maturity. The table below outlines support mechanisms required for various energy technologies, which are at different stages of development: Category Representative technologies Support mechanism required Technology ready to deploy End use efficiency Predictable and stable policy, eg to and commercially competitive On-shore wind support permitting and grid connection Enhanced oil recovery 1st generation biofuels Technology ready to deploy CCS Demonstration funding but not commercially Solar Transitional incentives competitive Offshore wind 2nd generation biofuels Technology not ready and not Energy storage R&D funding of the underpinning commercially competitive Generation IV nuclear sciences Tidal and wave power Geothermal

16. Commercialisation carries signiﬁcant risk and is only likely to occur where companies can justify the cost. In the US, for example, Federal and State governments mitigate the risk of commercialisation by contributing to demonstration funding. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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(vi) Focus on IP exploitation “Avoid a system of IP over-protection to the detriment of value creation for the UK.” 17. The UK’s IP regime is world class. Companies are attracted to the UK by the robustness of the IP system and the quality of its science base. The total UK income estimated from IP royalties ﬂowing from UK sourced IP is c. £7 billion a year. 18. Over-protection of intellectual property needs to be avoided where it is detrimental to realising value. To the extent that this is based on research funded by the UK government, then this should be prescribed upfront in the granting or research funding.

(vii) Capture value from UK R&D “Retain value through inward investment, royalties coming back to a UK entity or job creation.” 19. R&D in multinational companies is conducted locally but exploited globally. The value to the UK comes from those companies domiciled here from their total tax and social contributions, coupled with the inward investment made when R&D activities are based in the UK. 20. There is a signiﬁcant level of R&D intensive corporate foreign direct investment in the UK. Businesses are attracted by a combination of factors including a highly skilled workforce, a stable political and regulatory regime, the ease of establishing and maintaining research centres and a robust IP framework. This leaves the UK vulnerable to strategic decisions of multi-national companies to remove their R&D activities. 21. There needs to be some “stickiness” of the value associated with the IP generated in the UK whether through inward investment, royalties coming back to a UK entity or job creation. Otherwise, companies are able to exploit the excellent UK R&D base “at cost” without contributing to the on-going investment required to support it in the longer term.

(viii) Inﬂuence EU priorities “Compete for share of EU funding for research, development and demonstration consistent with the quality of UK research base.” 22. Increasing amounts of money are being channelled through the EU’s Framework Programmes for Research and Technological Development and, their successor in 2014, the Horizon 2020 programme. This increase is directly attributed to the EU’s Innovation Union strategy to support Europe in keeping apace with the surge in US and Chinese research activity. The UK needs to play a larger role in setting the future technology agenda in Brussels. 23. EU programmes should address frontier technology areas which are too risky for individual European nations to address independently, in line with the principle of subsidiarity. For example, there is no need for the EU to fund conventional programmes related to wind, solar, biofuels or electric vehicle technologies. Instead, the EU should focus its efforts on energy security, electricity infrastructure and standards, sustainable biofuels standards, carbon capture & sequestration demonstration, and generation IV nuclear.

Conclusion 24. The UK has a world-leading academic base and a highly innovative and entrepreneurial business community with a long and distinguished track record of delivery. 25. The UK is well positioned to exploit the opportunities associated with the wide-scale changes occurring across multiple industry sectors. This will involve high degrees of innovation not only in technology but also in the underpinning business models. Success requires signiﬁcant collaboration between the UK Government, academia and the private sector through carefully-chosen and well-executed partnerships. February 2012

Written evidence submitted by LGC Limited 1. Summary 1.1 Technical innovation is critical to the success of companies operating in the dynamic field of chemical and biological analytical services, and LGC has direct experience of the challenges of delivering commercial value from scientific R&D. In its contracted roles as a supplier of key scientific services to government that support research commercialisation in the UK, LGC also brings the perspective of an innovation support agency to this debate. 1.2 Our perception is that there is a gap in UK government funding and support for innovators striving to commercialise so-called “disruptive technologies”, which require significant investment (and usually a transition in working practices) to secure commercial success. This gap in funding can be surmounted by a degree of de-risking that will encourage partnership with private equity, venture capitalists and larger companies cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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that have strong ﬁnancial backing and an established market, and are in a better position to deliver commercial success from innovation activities. De-risking can take multiple forms including providing support from (and access to) organisations that can help in robust technology evaluation, business planning and prototyping, developing appropriate infrastructure (eg standards, regulation and procurement frameworks) and establishing funding/tax structures to incentivise investment.

2. About LGC 2.1 LGC was founded in 1842 as the Laboratory of the Government Chemist. It spent its ﬁnal public sector years as an Arms Length Body laboratory within the Department for Trade and Industry, prior to privatisation in 1996. LGC has since been through three rounds of venture capital funding, and is currently majority owned by a private equity investment company, Bridgepoint Capital. Since privatisation, LGC has extended its scientiﬁc reputation through substantial internal investment, grown revenue by 800% and created many hundreds of new jobs for the UK. LGC is now one of the leading private science facilities in the country, employing over 1,600 highly-skilled people undertaking chemical and biological analytical services for industry and governments on an international scale, with operations in Europe, Asia, Africa and America.

3. Experience in commercialising research 3.1 LGC supplies scientific, regulatory and programme management services on behalf of a number of government departments, and is the designated National Measurement Institute (NMI) for chemical and bioanalytical measurement. As the Government Chemist, LGC also has a statutory role in providing UK policy advice regarding chemical measurement. These government funded LGC activities are at the interface between R&D and commercialisation, and bridge the gap between academic research activities and commercial implementation. 3.2 A major customer for LGC’s programme management services is the Department of Health (DH). LGC manages the National Institute for Health Research (NIHR) Central Commissioning Facility and the Policy Research Programme (PRP) on behalf of DH, and as such is responsible for coordinating the distribution of £300 million of research funds per annum, including two funding schemes (the NIHR Innovation for Invention programme and the joint DH/Wellcome Trust Health Innovation Challenge Fund) targeted at translating research into commercial application. LGC also has an important role in monitoring these funded programmes to ensure funds are being spent wisely. 3.3 As a leading supplier of specialised chemical and bio-analytical services to government and industry customers, technical innovation is critical to LGC’s competitiveness. Our company invests over 3% of turnover in research and development to enhance customer service, and £8 million was spent in FY 2010–11 in capital investment. We are also active participants in collaborative research programmes funded by the Technology Strategy Board and are members of various Knowledge Transfer Networks. 3.4 Our German laboratories have also benefited from German state funding for scientific businesses. Two of our laboratories in the vicinity of Berlin benefited directly from local government support to help establish state-of-the-art laboratory facilities. We also have some experience in participating in EU Framework funded projects. 3.5 Because of our position as a supplier to government of key scientific support services that support research commercialisation in the UK, as well as our own experience in bringing innovative products and services to market, we are in a strong position to advise government on the subject of this Call for Evidence. LGC is focused on sharing learning across our disciplines and with our government partners and we see this Call for Evidence as an opportunity to do this.

4. The difficulties of funding the commercialisation of research 4.1 In discussing commercialisation of research, distinctions need to be made across a scale of innovation activities from “easy” to “difficult”. The “easy” cases result from developmental or iterative changes, with lower risk and shorter timeframes for payback. “Difficult” cases require significant time and money investment for successful commercialisation, and usually involve development of new markets and supply-chain infrastructure. LGC has experience at both ends of the spectrum. 4.2 We have numerous examples of successful technology transfer at the “easier” end of the scale, where new technical solutions have been successfully adopted in commercial LGC services for customers, or deployed in new products for sale. Much recent effort has been directed to developing methods and tools for various DNA analysis applications, which can be directly commercialised through LGC’s established Forensics and Genomics businesses. 4.3 Other elements of LGC’s strategic R&D portfolio have been rather less easy to commercialise, with projects generally involving the development of so-called “disruptive technologies”. The commercialisation of the outcomes of these projects, assuming the projects do not fail on technical grounds, requires a significant investment (or transition in working practices) by third party customers as well as LGC to secure commercial success. The availability of TSB funding for collaborative research has been valuable in such cases in order to develop technological solutions that are most relevant to the customer base. However, there are still significant cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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further hurdles involved in getting a disruptive technical solution converted into a successful commercial product. 4.4 One significant investment LGC has made in recent years is in the commercialisation of a highly innovative technology termed dna™, which is based on LGC’s proprietary HybeaconsTM technology for Rapid DNA analysis. This investment is entirely self-funded and would not have been feasible without the support of our private equity owners Bridgepoint Capital. The technology takes the form of a portable device, which supports the use of DNA as an intelligence tool. Importantly, dna™, complements conventional evidential DNA tests, but will provide police forces the capability to include or exclude suspects from an investigation very quickly. A dedicated delivery team has been established to produce and market dna™ technology for the police forces, but despite the years of investment and extensive market testing there is still a distinct commercial risk due to the disruptive nature of the technology. Successful adoption of this product will require training of the customer base, implementation of new data handling solutions (eg linking data with the UK DNA database), and significant revision in the approach to forensic regulation, standards, and working practices by police forces. 4.5 Key learning points from LGC’s experience in commercialisation and in working with Universities and Small-to-Medium Enterprises (SMEs) are: — SMEs and larger companies are best placed to take smaller scale innovations to market. Knowledge of innovations within the research base is important to ensure investments in the science base are effectively translated in to industry value, Technology partnerships and knowledge transfer networks can facilitate this, and do so with varying effectiveness. — Government funded collaborative projects are valuable instruments for the initial development of a marketable technology or service, but only near market innovations can be developed from idea through to full commercial exploitation during the normal funded one to three year period. — Significant further self-financed investment is required to transfer disruptive technology into a commercial product or service. — 50% funding over a one to three year timeframe is not usually sufficient for start-up enterprises to demonstrate progress with disruptive technologies, or to de-risk innovations sufficiently to attract large funding from industry or venture capital. — SMEs and universities need access to a support infrastructure that enables them to more easily assess the value of their technology and to ensure that resources are best utilised to progress in a way that is more likely to attract follow-on investment. 4.6 Our experience suggests that larger companies like LGC that have strong financial backing and an established market are in a better position than smaller companies or academic groups to deliver commercial success from innovation activities. It may therefore be appropriate for government to consider mechanisms to further promote “open innovation” models, whereby the inventiveness of small companies and academia can be harnessed and capitalised on in partnership with larger industrial end users.

5. Sectors where it is difficult to commercialise research 5.1 LGC has considerable experience in delivering innovation in the field of measurement science for the areas of Health and Criminal Justice (forensics). Both these sectors are notoriously cautious in adopting new technology due to tight regulations and high cost of failure. The lack of standards, regulation and the requirement for national infrastructure can all be barriers to commercialisation. The UK could do better in supporting innovative new markets by better coordination of the supporting infrastructure and facilitating investment through, for example, tax benefits and Government procurement. 5.2 Through our innovation support activities, we have also observed the significant challenges faced by innovative biotechnology companies in bringing new products to market. Only a small percentage of biotech companies fail for technical reasons before the start of product development. Of those that fail at this stage, some have been founded, and investments made, on results which subsequently could not be repeated or developed. By contrast, failure in early stages of product development is common. This rarely leads to complete company failure, but it can do so, and it does lead to the need for substantial re-work and consequent added cost. Up to 20% of the biotech company’s total investment can be spent on such re-work. Some 50% of biotechnological companies are believed to be delayed or incur extra cost due to such problems. 5.3 One biotech company we are familiar with was founded by a group of experts from a leading UK institution to develop gene therapy applications from the founder’s research. Substantial investment was received for a portfolio of programmes, including one that went rapidly to human clinical trial. Much of the early work was high quality and was published in peer review journals. However, the assay processes were not suitable for regulatory requirements and the therapeutic was hard to manufacture. 5.4 The therapeutic manufacturing protocols and monitoring methods were changed during the pre-clinical development phase. This meant that the therapeutic construct was different to the original one. The company needed to demonstrate equivalence. No Standard Operating Procedures had been written and no samples retained. The cost associated with correcting this position was around £2 million or 10% of funds invested in the company. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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5.5 LGC is currently contributing to a TSB-funded project aimed at understanding the barriers to commercialisation for cell-based regenerative medicine products and developing a tool-kit (including predictive modelling tools for market analysis and optimisation of manufacturing processes) for companies seeking to commercialise new products in this area.

6. Common difﬁculties across sectors

6.1 Common challenges arise for research commercialisation across sectors. Commercial success requires: — Knowledge of market needs within the science base. — Proof of concept (including independent assessment and veriﬁcation). — Maturity of market for the innovation (and readiness for change). — Availability of supply chain/infrastructure to serve the innovation. — Business planning. — Robust quality management processes throughout the product development phase. — Availability of investment (and associated due diligence). — Skills for marketing and commercial delivery. — Supportive regulation. — Government support mechanisms should strive to address these areas.

7. Research commercialisation outside of the UK

7.1 We are aware of a few examples where innovations have been successfully commercialised abroad, and not in the UK, indicating that some non-UK markets may be more receptive to adopting new technological solutions than our own. This is clearly a threat to UK innovators, but it should also be acknowledged that a signiﬁcant proportion of UK wealth is created by multinational organisations that are in a position to seek out receptive international markets for new products. It is most important to ensure that these multi-national companies invest in R&D in the UK rather than overseas, and to do this we need to maintain our universities at the leading edge and make it easy for companies to access IP and skills. Otherwise they will move R&D centres overseas, and this would be particularly harmful to our economy.

8. Evidence that Government and TSB initiatives have improved the commercialisation of research

8.1 LGC is an enthusiastic proponent of TSB-funded Knowledge Transfer Networks, and has participated in TSB-funded collaborative research projects for the development of commercially relevant technology. Our most successful TSB-funded projects have tended to be relatively small (three to four partners) business-to- business projects, where there was a real focus on delivering a commercially viable product to address a particular industrial need.

8.2 One recent example has been a collaborative project led by LGC for the development of technology for in-clinic rapid detection of Chlamydia and other Sexually Transmitted Infections (STIs). This innovation will enable results to be processed whilst patients wait, rather than having to send samples off to a remote laboratory for processing, and this time saving is expected to have a significant beneficial effect on the ultimate eradication of these STIs. Such part-funded TSB projects are very useful for understanding market needs and tailoring technical solutions in line with these. However, subsequent commercialisation steps can be slow and require significant further investment. This investment can become a significant barrier.

9. LGC’s view on the government’s innovation, research and growth strategies and their expected impact on the commercialisation of research

9.1 It was very encouraging to see government spending for scientiﬁc research and collaboration protected in the recently published government strategy. The current adverse economic climate is certainly a challenge for those seeking to commercialise research, so government support at this time is particularly important. The proposed mechanisms and infrastructure (eg catapult centres) to promote collaboration and ﬁnancially support early stage innovation enterprises are also very timely.

9.2 One element that was less well articulated and possibly represents a gap in the current strategy is the role of established larger private companies in helping with the commercialisation of research. The ability of larger companies to effectively commercialise research could be leveraged further with appropriate government support. The international dimension to UK innovation was a particular area that received substantial and overdue attention in the Innovation and Research Strategy for Growth. Larger companies with an established international presence are in a particularly strong position to raise the proﬁle of UK science and innovation and leverage its value overseas. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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10. The role of private equity investment in science and engineering sectors and how government can encourage it 10.1 As an example of a successful private equity-backed science organisation, LGC’s privatisation experience may be of relevance to help understand the value private equity investment can bring to science enterprises. 10.2 We think that the gap in the currently available government support mechanisms for R&D commercialisation could be resolved in some part by having a well financed “middle sector”, comprising organisations like our own operating in the technology transfer and innovation market. These organisations are in a good position to provide experience and support in business planning, technical evaluation, standardisation and quality assurance, market intelligence and access routes. The partnership of such organisations with the scientific innovators would provide: (a) Improved support for proof of concept—financing, access to expertise and technologies, independent assessment and verification. (b) Reduced hurdles to VC support—market creation, technology evaluation support (help to identify winners and losers quicker), business support (plans, financing options, improved tax incentives etc). Government support and funding to promote such partnerships could therefore be beneficial.

11. Other Government support options to consider for future funding 11.1 There is a perceived gap in government funding options for organisations once a new technology has been developed, and a new product or service is ready for commercialisation. Self-investment is usually required for the next steps of business development and this can often be a challenge where an organisation lacks access to capital and experience. To lessen this burden, it may be useful for government to direct funds towards: — Market analysis support to understand market needs. — Flexible regulation that can be tailored to accommodate new research outcomes. — Infrastructure to support new technology adoption (establishing the supply chain). — Addressing the risk-averse culture in certain markets eg helping customers to manage the risks of new technology adoption, reducing regulatory constraints. — Training in relevant skills for entrepreneurs and investment community. — Support with ﬁnding, establishing and funding commercialisation partnerships with larger companies and investors. February 2012

Written evidence submitted by BioIndustry Association (BIA) About the BIA Established in 1989, the BioIndustry Association (BIA) exists to encourage and promote a ﬁnancially sound and thriving bioscience sector within the UK economy and concentrates its efforts on emerging enterprise and the related interests of companies with whom such enterprises trade. The BIA represents innovative healthcare- focused bioscience companies, including over 90% of biotech medicines currently in clinical development in the UK. BIA members are at the forefront of innovative scientiﬁc developments targeting areas of unmet medical need and this innovation will lead to better outcomes for patients, the development of the knowledge economy, and economic growth.

The BIA Response 1. “Valley of death”—BIA members are clear that the “valley of death” should be considered as a loose deﬁnition. At various stages of a company’s development it will encounter funding and other challenges. This is particular to individual companies and a broad brush deﬁnition can therefore be unhelpful. However, for the purposes of this inquiry the BIA will focus upon the period between late stage discovery to pre-clinical and Phase 1 clinical development. This includes such steps as candidate selection, optimization, good manufacturing practice (GMP) and toxicology testing.

1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 2. The development of a new medicine to market takes, on average, 10 to 15 years and costs, on average, around $1 billion. This represents an expensive and risky development process which is required to thoroughly prove the efficacy and safety of new medicines to give confidence to patients in the UK and worldwide. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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3. This should be considered alongside the high attrition rate of potential new products in medical research whereby new compounds that enter development have only a 0.1% chance of reaching launch (see Figure 1 below).

Figure 1 DRUG DEVELOPMENT TIMELINE (SOURCE BIOSCIENCE 2015):

4. While the UK has world leading science it has been recognised that the UK has a poor record at translating this research. This could be due to a number of reasons, including the technology transfer infrastructure, but a lack of available funding for applying basic research and proving its product potential is a significant factor. 5. The declining funding environment for bioscience companies in the UK over recent years has exacerbated this problem. Traditionally, a small and emerging bioscience company will be spun-out of a university around a promising area of research which will often include robust and enforceable Intellectual Property (IP) protection. A spin-out company will typically attract initial seed, angel and early stage Venture Capital (VC) funding in which to further develop the research and demonstrate its market applicability. While understanding of the product or technology will constantly change, the company aims to develop the research to clinical development stage. At this stage, significant further funding can be obtained from VC and larger corporate entities. Partnering the product with large biopharmaceutical companies also often occurs. 6. Crucially, also at this stage bioscience companies had the option of an Initial Public Offering (IPO) and obtaining further significant funding from the market. There has been a dramatic decline in IPOs in the UK in recent years removing this exit option for investors. Such private investors are therefore faced with locking their investment away for a far longer period of time until the possibility of return. This, in turn, drives investors towards technology areas that are closer to market whereby the technology can be proven and applied faster and the potential for a return on investment is closer. Those bioscience investors that remain, both private and corporate, are also showing signs of shifting attention towards assets that are closer to market, eg phase II onwards. 7. Simultaneously the traditional medical research and development model is coming under strain for a number of reasons including a changing pharmaceutical environment and reimbursement pressures. 8. In answers to questions below the BIA comments in more detail regarding areas for possible government action. However, it is important to point out that the sector is already adapting to these constraints and examples of new funding models are emerging. For example, mixed VC and corporate investments at early stages of research goes someway to de-risking the investment. Government should encourage such moves and look again at tax incentives such as Consortium Relief which, due to wording in the legislation, often do not apply to bioscience funding.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 9. The detail given above is relevant to this question. As explained, medical research, particularly bioscience, is considered a riskier investment prospect than other sub sectors, eg medical technology, or other innovative and hi-tech sectors. This is because bioscience products take a longer time to reach market requiring investors to “lock” their investment away for a longer period of time before a potential return. The funding environment, including the vast reduction of UK bioscience IPOs, has constrained the available finance further. Funding for cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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earlier stage research is restricted as corporate and private investors seek to pursue closer to market technologies or “validated” products and technologies with clear market potential. 10. Given the incredibly complex nature of medical research, potential products and technologies do fail. This is to be expected and ensures only those innovative products which have proven their efﬁcacy and safety reach patients. However, BIA members have stated that by necessity they are spending more of their time focused on sourcing funding. Projects and promising exploratory research is being halted because of funding constraints and not on the basis of scientiﬁc decisions.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 11. Biovex, a company based in the US, was acquired in 2011 in a deal which could be worth $1 billion. This was one of the largest bioscience VC backed sales in history. Biovex was originally spun-out from University College London and was based in Oxford until 2005. It therefore represents a success of British science. There were clearly a number of factors involved in the relocation of the company to the US, however readier access to ﬁnance was clearly one aspect. 12. The BIA is aware of other British founded companies re-locating to the US and continuing the commercialisation of their research in that jurisdiction also. As stated, there are often multiple factors at play in any such decisions such as a desire to be located closer to the company’s target market or for regulatory reasons. It is apparent though that the easier access to ﬁnance and a more favourable public market in which to raise funds and continue development are key issues. BIA members have warned that this will continue if the funding environment does not improve in the UK.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 13. Initiatives which seek to de-risk investment opportunities, whether by providing direct funding, matched funding, or through tax incentives and using the levers available to government to improve the investment framework, have positive affect. 14. With regards to TSB funding calls for example, these have often been incredibly beneficial for those companies that have made a successful bid. Recent specific TSB funding calls in regenerative medicine and for identifying biomarkers have demonstrated the government’s commitment to the UK leading in these fields. Such signals are important to the investment community. 15. Other ongoing TSB funded programmes such as Knowledge Transfer Partnerships have proven helpful in some areas and can be a useful tool in aiding the information flow between academia and industry. However, BIA members have also provided examples of situations where KTPs have been considered an administrative burden. Small levels of grant available to secure an appropriate individual for work and disagreements around IP have also been cited. 16. BIA members have also stated that broader and more open funding calls are sometimes more appropriate than therapeutic specific or technology specific calls which can limit uptake and participation. This is something the TSB could consider when implementing the BioMedical Catalyst fund recently announced in the Strategy for UK Life Sciences for example. 17. Government action to encourage private investment through the tax framework is also of vital importance to innovative sectors such as bioscience. For example, R&D tax Credits support the growth of innovative companies. As such, the Credit provides tangible and hugely valuable fiscal support for small and emerging bioscience companies. 18. The BIA has long advocated an enhancement and refinement of the R&D Tax Credits. Most recently, the BIA warmly welcomed the changes to the Credit, particularly removing the PAYE/NI cap on the value of claims a company can make. This will further aid small companies that perform large amounts of R&D and recognises the trend towards “virtual” companies. The BIA also welcomes the raising of the R&D Tax Credit limits but points out that in some cases where pre-revenue companies are eligible for the cash-back scheme the effects of this change is significantly mitigated by State Aid rules. 19. Mechanisms which support individual private investment, such as Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs), are also important. Further enhancements to these policies announced in Budget 2011 are welcome. However, there are limitations to the policies which mean the incentives do not benefit all sectors. For example, EIS rules do not permit shareholder to shareholder benefits. The recently announced Seed Enterprise Investment Scheme may also lack relevance to the bioscience sector given the relatively small figures provided for and the one year duration of the benefits. 20. These personal tax incentives are also aimed at high net-worth individuals. While this is important, the BIA believe there is a need to consider diversifying the funding base (further detail given in answer 6 below). 21. Research Councils are investing significantly in basic research which ensures the UK retains an enviable and world leading science base. At the clinical research stages of translation the NIHR, through NOCRI, are cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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also investing signiﬁcantly and collaboratively through the Translational Research Partnerships (TRPs). The BIA is a strong supporter of the TRPs and believes the initiative should be given the resources and time required to produce results.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 22. The BIA welcome a number of recent fiscal announcements from Budget 2011. The BIA also supports the introduction of the Patent Box. Beyond that, the recently launched Strategy for UK Life Sciences is most relevant to this question. 23. The Strategy contained a number of actions that have been welcomed by the sector. The actions contained within it, and the accompanying Innovation Health and Wealth report by the NHS Chief Executive, can bring benefit to all aspects of the life sciences sector including bioscience. In particular, the BIA is supportive of the principles behind the £180 million BioMedical Catalyst Fund and the Early Access Scheme. 24. The BioMedical Catalyst Fund can be directed at the “valley of death” and used to aid academics and companies attempting to develop their research. The MRC and TSB should coordinate their activities to this end with the goal of increased commercialisation and translation to the benefit of growth in the UK squarely at the centre of the policy. It is imperative to ensure this money is not simply earmarked for use in the same ways as previously, but that real effort is focused upon bridging the gap and making funding available for truly translational activities. 25. Consideration should also be given to how funding calls will be made and whether these will be in an appropriate form for small and emerging companies. How the fund interacts with private investors is also important. 26. The Early Access Scheme could also be of significant benefit to small companies provided that it is designed in such a way that allows it to apply to Phase II products and further that appropriate reimbursement plans are in place. 27. The Strategy has only very recently been announced and a number of the actions will require further engagement and consultation. The detail of these policies will be important and a thorough ex-poste analysis of their affect made in due course.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 28. The BIA strongly believes that government should use the levers available to it to provide further incentives for private investment into innovative sectors. Supporting the existing bioscience funding structure through amendments to Consortium Relief, EIS and VCTs for example are important. 29. However, as well as providing incentives for high-net worth individuals the BIA would like to see mid- net worth individuals encouraged to invest in innovative UK companies. This would serve to engage the wider public with UK innovation and provide diversified funding opportunities for companies. 30. The BIA believe the government should introduce Citizens Innovation Funds (CIF) (see Appendix), based on the French Fonds Comunes de Placements dans l’Innovation (FCPI) scheme. FCPI is an incentive to encourage investment in innovation by mid-net worth individuals under which funds can be set up by intermediaries to collect capital and used to finance start-ups and innovative business ventures. 31. The scheme would be a tax free retail investment product allowing £15,000 per person per annum to be invested in funds which are targeted towards innovative SMEs. The FCPI scheme is notable for the large sums raised from high numbers of private individuals who are keen to invest in the knowledge economy in a tax efficient form without risking large amounts of their savings. In this way the government is an enabler, rather than a provider, of much needed investment. 32. The FCPI has been successful in raising almost €6 billion and creating over 300 funds run by nearly 40 asset management companies. These funds have invested in over 1,000 companies including in the UK. 33. The BIA advocates framing the CIF along the same lines and proposes that 60% of assets are invested in private companies that qualify for the SME R&D Tax Credit scheme. The remaining 40% could then be invested freely. The scheme could also be set up so that research charities are encouraged to offer this type of vehicle to donors, using their investment arms, adding to the sense of venture philanthropy which is prevalent in other jurisdictions such as the United States. 34. The scheme would need to be simple and offered as a retail product to ensure ease of uptake. Simplicity would appeal both to retailers, to sell it, and for mid-net worth individuals, to easily understand it and invest. Consideration is also needed to identify the appropriate mechanisms to ensure the funds are targeted towards the right companies and at the right stage of development. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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7. What other types of investment or support should the Government develop? 35. Beyond funding, there are other areas where government can provide strategic support to aid technology commercialisation, such as Technology Transfer Offices (TTOs). 36. Some BIA members have informed us of difficulties engaging with TTOs and entering agreements to purchase assets to develop. Others have informed the BIA of difficulties in forming a spin-out company. 37. Britain’s universities are recognised as a world-class source of research and innovation. Universities have a central role to play in ensuring that innovation can drive forward economic growth in bioscience and other high-tech sectors. According to the Higher Education Funding Council for England (HEFCE), the total value of knowledge exchange in UK universities was £3.09 billion in 2009–10. 38. Through IP generated at the university, a TTO might aim to create licensing opportunities for the businesses or spin-out companies in order to commercialise new technologies and innovation. Most universities in the UK have a TTO which are funded through the Higher Education Innovation Fund. 39. It is clear much good work and effective translation already takes place and it would be beneficial to build on this and aid those TTOs that do not have an adequate skills base. This would go some way to ensuring greater uniformity throughout the system. 40. Government may wish to scrutinise whether the current incentives for TTOs are the correct ones and ensure opportunities to commercialise IP are not lost. 41. Research conducted by the Advanced Institute of Management Research (AIMR) and Imperial College Business School showed that between 2004 and 2008 an increasing number of firms reported a range of problems that they consider barriers to greater collaboration with TTOs including a perceived lack of realistic expectations. 42. One action to consider would be a framework to help resolve disputes that arise where the TTO and commercial entity cannot agree a value for the IP. This could include a fund for subsidising the difference in value which could be offered on a loan basis with a view to converting the loan to equity if certain milestones are reached for example. 43. Interesting open access and easy access IP models are being developed. Recently, a new collaboration was announced between Sussex university and four other institutions to create a single, easy to search format that catalogues all relevant research and IP available for investment. Consideration should be given to building on these initiatives on a larger scale and creating a centralised portal to catalogue IP generated in universities. 44. A portal should also act as a facility for academics to find partners for commercialising research, providing them with a national technology transfer framework. The provision of expertise and support to commercialise IP for those smaller TTOs that require it can be facilitated in this way. February 2012

APPENDIX BIA Position Paper: Citizen Innovation Funds What are Citizens Innovation Funds? Citizens Innovation Funds are based on the French Fonds Comunes de Placements dans l’Innovation (FCPI) scheme. FCPI is an incentive to encourage investment in innovation by mid-net worth individuals under which funds can be set up by intermediaries to collect capital and used to ﬁnance start-ups and innovative business ventures.

Summary The government should introduce Citizens Innovation Funds, a UK version of the French FCPI Scheme. This scheme would be a tax free retail investment product allowing £15,000 per person per annum to be invested in funds which are exclusively targeted at innovative SMEs. The FCPI scheme is notable for the large sums raised from high numbers of private individuals who are keen to invest in the knowledge economy in a tax efﬁcient form without risking large amounts of their savings, with a €13,000 investment cap. The UK scheme would make the government an enabler, rather than a provider, of much needed investment in this sector. The BIA is currently in discussion with a number of UK retail banks about how they might adopt the scheme and so far response has been positive.

Introduction There is a need to provide further sources of ﬁnance to small, pre-revenue biotech companies and those in other technology areas in the UK, both listed and unlisted. The Government can act as an enabler by creating the environment necessary, through the tax regime, to help raise such ﬁnance. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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While tax mechanisms exist within the UK tax regime to incentivise high-net worth individuals to invest in innovative sectors (EIS and VCTs) there is a lack of incentives to encourage mid-net worth individuals to invest. Existing schemes are limited because: — EIS often require the investor to be directly linked in some way to the company they are investing in. — VCTs tend to invest in the least innovative sectors because the annual investment limit is too low. — VCTs predominantly invest in listed companies. — The minimum threshold for investment in EIS is too high for many to commit to. So these existing schemes are either too small from the point of view of the company, or too expensive from the point of view of the individual looking to invest. Citizens Innovation Funds would provide ﬁnance for innovative companies by: — offering a simple vehicle for mid-net worth individuals to invest modest amounts in high growth, innovative sectors, tapping into philanthropic investments, currently only open to the very wealthy; — support small, privately owned companies; — help the UK start more new innovative SMEs to exploit the discoveries coming from the world class research base; and — provide the public with a greater understanding of the needs and risks of research intensive industries, while at the same time educate them as to the potential high rewards of success; The FCPI has been hugely successful: — A total of €5.5 billion raised. — Over 300 FCPI funds run by nearly 40 asset management companies. — Invested in over 1,000 companies, including in the UK (for example, BIA member Syntaxin).

How would it work? The BIA would propose that 60% of a Citizens Innovation Fund would be invested in private companies that qualify for the SME R&D Tax Credit Scheme. The remaining 40% of assets could be invested freely. The scheme should be set up so that research charities are also be encouraged to offer this type of vehicle to donors, using their investment arms (such as Cancer Research Technology), adding to the sense of venture philanthropy. The scheme would also need to be simple, and therefore appealing both to retailers (to sell) and for mid-net worth individuals (to understand easily and invest in).

Next Steps The BIA is in discussions with tax experts with regard to the format of the UK version. The BIA is also in discussions with potential retailers to consider how such a system could be sold to the public at large. Finally, the BIA is working to build a broad alliance of innovative sector representatives, all of whom would beneﬁt from Citizens Innovation Funds. We can also take lessons from similar schemes which have been set up elsewhere in Australia and Canada to ensure that Citizens Innovation Funds are built on best practice.

Written evidence submitted by The Electronics Technology Network 1. Summary of Outcomes 1.1 What are the difficulties of funding the commercialisation of research, and how can they be overcome? Funding remains the significant barrier, however Product Development, and Business Management skills are cited as weaknesses in both SMEs and Universities. Within Universities, the practise to adopt Full Economic Costing is a deterrent, and in particular, makes the Collaborative R&D programme less attractive to SMEs. This report outlines recommendations to address these issues, specifically regarding funding.

1.2 Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? Technology, in general, is difficult to commercialise, due to the costs associated with prototyping, testing, and reaching into a global market. University research is focused towards new science and curiosity. Business cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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would prefer a stronger applied research agenda. The recommendations address the issues related to building better partnerships between business and academia.

1.3 What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? There have been examples, however, the interest shown by overseas companies concerning our University research should be a strong indicator, to us, that our research is worth exploiting, and we require a clear process to understand how this can be achieved.

1.4 What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? Current schemes have a mixed review. There is a view that more focus should be provided to assist SMEs. Current schemes put SMEs at a disadvantage, especially when working with Universities. Unnecessary bureaucracy and administration are cited as common problems with the current schemes. This report recommends alternative views to the CR&D scheme, and provides some feedback on their value.

1.5 What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? In an environment where liquidity is poor, and with funding being the greatest constraint, enabling business to get access to ﬁnance will greatly improve prospects for growth.

1.6 Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? Yes, and this is outlined in some detail in the body of the report.

1.7 What other types of investment or support should the Government develop? The report recommends a voucher scheme to engage business, especially SMEs, with Universities. Not a new idea, but one that has worked in the past. Consideration should also be given to understand how the KTP scheme can be made ﬁnancially more attractive to business, to enable them to realise the beneﬁts of working with academia.

2. About this Survey In response to the House of Commons, Science and Technology Select Committees call for submissions concerning the issues facing companies who wish to breech the “Valley of Death”, the Electronics Technology Network (ETN) conducted a survey across the UK Technology network of companies and universities, to gauge opinion for a number of recommendations that would address the issues. — The five recommendations focused on three specific aspects: Business working with Academia, Funding for Innovation and Promoting UK Technology and Innovation. — The ETN is well placed to comment on this subject, given its history as both a business network and a KTN (representing electronics), working with Government departments (BIS, UKTI and the TSB), Universities and the Business community, and with a membership of over 7000 (95% of whom are SMEs). — The survey was open for a short period (2 February until 6 February), and during that time, 238 companies made a response. Of the respondents, 76% have worked with Universities, 27% have engaged with the Knowledge Transfer Partnership (KTP) programme, and 28% have engaged with the TSB in the Collaborative R&D programme. — Respondents are a cross section of the technology sector, from SMEs, Large Companies and Universities. Many respondents have given their permission to acknowledge their response to this survey (see appendix 1), others have preferred to remain confidential. — In total, over 450 comments were received from the respondents, commenting, and often enhancing, the recommendations the ETN suggested. Notable comments are summarised in this report. — The views expressed in this survey, are the views of the individual, and not necessarily the views of the organisation they represent as a whole (the corporate view).

3. Business working with Academia — The Engineering and Physical Science Research Council (EPSRC) have £3.6 billion of research work-in-progress. — This is an untapped resource for the UK’s business community. Increasing the level of academia to business engagement to expose the commercial potential of this research agenda is a priority, and the ﬁrst step in the process for commercialisation. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:05] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Recommendation #1—Promoting the UK’s University Research Agenda Much more needs to be done at a regional level to highlight the Regional/Local Universities research agenda to business, in a language friendly to the business community (highlighting applications, functionality, markets). University research programmes should be show-cased through regular networking events, and accessible through a simple on-line portal

Do Not Agree 6.8%

Partially Agree 36.1%

Agree 57.1%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

3.1. Technology Community Reaction to Recommendation #1 3.2 57% of respondents agreed with this recommendation. 3.3 A further 36% of respondents were in partial agreement, who supplied additional commentary worthy of note as follows: 3.4 Many of the comments related to the actual research that is being undertaken at Universities. Whilst there was caution to ensure that “blue sky” research is not diluted to the extent that the UK will not discover breakthroughs (such as Graphene), there was a general feeling that a mechanism needs to be put in place where a greater balance of University research is based upon “Business Needs”. The business community needs to be involved to set the research agenda, creating a stronger “market pull”, rather than a “technology push”. 3.5 Both penalties and incentives were suggested for Universities to encourage greater collaboration with business. Universities should be more proactive seeking business partners for research projects. Elevating the status and quality of technology transfer officers within the Universities was recommended. There is a perception that the University commercial staff are not regarded as critical, when considering the process to win new grant funding (for research), and therefore, are not highly respected. 3.6 Future funding for Universities should be based upon their past record of commercialisation. Incentives should be given to Universities to adapt research to reflect the skills and interests of their local business community, thereby strengthening the regions cluster. Universities should invite guest lecturers from business to further build stronger links between the business community and academia. 3.7 One significant barrier cited was the current RAE (Research Assessment Exercise) rating system that deters academia from collaboration with business due to the conflict between commercial interest and the need for publication and dissemination. 3.8 Whilst promoting a regional cluster of Universities may be pragmatic, and will serve the needs of the local business community, any related events should be marketed nationally. Businesses serious about working with Universities will travel if the agenda meets their needs. 3.9 An online portal, whilst welcomed, should be accompanied with networking events that gives both the University and Business participants the opportunity to discuss real collaborative possibilities. It is necessary to create a raison d’être for business to review the portal. A “National Research Directory” should be considered, applied consistently for not only universities, but other public bodies that receive grant funding for research (Public Sector Research Establishments) 3.10 It was felt that Universities over value IP. A more enlightened approach should be adopted, encouraging business to take up license opportunities. A review of Glasgow University’s model for licensing IP would be worthwhile. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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3.11 To overcome the “language barrier” between academia and business, professional technical journalists should be employed to develop the abstracts that highlight the commercial value for research. It was noted that the project titles, abstracts and papers are not written for business, but for peer review, so it’s not surprising that there is a language mismatch. 3.12 The process for the now defunct Defence Diversiﬁcation Agency should be reviewed for its merits to pull technology through to the market. 3.13 Only 6.8% of survey respondents disagreed with this recommendation. Many of the comments presented by these respondents were similar to those made above, especially the point that more funding should be placed into “applied” research. We generate too many ideas; the cost of an idea is much cheaper than the cost to commercialise the idea.

4. Business Working with Academia through Knowledge Transfer Partnerships (KTPs) One of the most successful schemes to transfer knowledge from Universities to Academia is the Knowledge Transfer Partnership (KTP), formerly the Teaching Company Scheme. The scheme has been running since 1965, and is generally well regarded, although there remain issues concerning the cost to business, marketing the schemes to both graduates and companies, and the cost of administration. The TSB are planning to cut the budget for KTP’s by more than 50% in 2014/15 (a reversal of recent policy, where their goal was to double the number of Graduate Associates in the scheme), despite a positive evaluation of the programme in February 2010.

Recommendation #2—Knowledge Transfer from the Universities Review the KTP programme, speciﬁcally reducing the cost of administration, enabling the cost to business to be reduced to an attractive level to encourage greater uptake. Improve the marketing for the scheme, re- introduce the shorter, 6 month to 1 year schemes focused on product development.

Do Not Agree 5.6%

Partially Agree 24.7%

Agree 69.7%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

4.1 Technology Community Reaction to Recommendation #2 4.2 70% of respondents agreed with this recommendation. 4.3 A further 25% of respondents were in partial agreement. In terms of getting business and Universities to work together, KTP’s are a good initial step, however some observations were noted. 4.4 KTP’s are reported to be more valuable at proof of concept, rather than during the commercialisation process. To improve this situation, an emphasis on projects that focus on product development should be a priority, utilising Business Development Graduates. Consider a scheme that would employ a “team”; engineer plus a marketer, a la Wozniak and Jobs. 4.5 In terms of cost, perhaps a “scaled” approach may be better, where micro companies pay signiﬁcantly less than larger companies. 4.6 Respondents who had previously participated in a KTP scheme mentioned that the administration burden is seen as signiﬁcant, and should be reduced. 4.7 For smaller companies a 6–12 month KTP project would be welcome, with an option for an extension. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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4.8 Participating companies are seen as the “lesser” partner (compared to the University), and should be given more control, especially for smaller companies. 4.9 An alternative view to be considered would be science based apprenticeships, similar to the “thin sandwich” concept of the 80s.

4.10 Marketing KTP’s As suggested by a number of respondents, the marketing of KTP’s may not actually be the issue with regards to their uptake. 77% of the respondents were aware of the programme, however only 27% of respondents had actually engaged, (Charts 3 and 4). Chart 3 Awareness of the KTP programme

Not Aware 23%

Aware 77% cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Chart 4 Respondents who have engaged with

the KTP programme Engaged in the KTP process 27%

Have not engaged in the KTP process 73%

A key selling point of the KTP programme is the value add associated by working with the University Department, enabling business access to both academics and equipment (potentially unavailable to an SME). This is a key argument made by KTP Advisors when selling KTP’s to business; however the uptake indicates that the case is not yet made. KTP’s can be the instrument to first engage business and academia in a collaborative way, enabling business to realise in-direct benefits other than the services of a Graduate focused on the Company’s specified project, therefore consideration should be given as to why business is not utilising the scheme, potentially giving Graduates their first experience in a business environment.

4.11 Cost—A Barrier to KTP Uptake? The majority of respondents (56%) felt that £22k, the average salary that business would contribute to the KTP Graduate, to be too high, pointing to a signiﬁcant barrier (see Chart 5). cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Chart 5 Is the current average salary for a KTP graduate too much for business to pay? £22k salary for KTP graduate £22k salary for too high KTP graduate 56% NOT too high 44%

An overwhelming number of respondents (64%), recommend a contribution from business towards the salary of the KTP Graduate of between £10k and £15k (see Chart 6)

This underlines the need to re-assess the KTP programme to re-align the cost structure, through simpliﬁcation of the administration and application process, but with a clear goal to reduce the cost to business. Depending on how costs are allocated towards University overheads, this may require additional investment by the Government.

Chart 6 What salary should business contribute to a KTP graduate? > £22k 7%

£15-£22k 29% £10-£15k 65% cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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5. Business Working With Academia: Contracting Services with Universities One of the barriers to engagement, especially for SMEs, is the fee quoted by Universities for business services. Universities are well equipped with an array of capital equipment and expertise that Businesses could utilise, especially for the test and development phase for new products or applications. Enabling Business to contract these services at commercial rates would further build relationships between academia and business. Many Universities, however, charge a service rate based upon full economic overhead cost recovery, rendering the price to business as too expensive, and therefore hindering collaboration.

Recommendation 3—Contracting Services with Universities Encourage greater collaboration between Business and Academia, especially for SMEs, by easing the cost of engagement between University and Business. Voucher Schemes should be introduced at a regional level, enabling SMEs to contract University services for Product Development, including Proof of Concept, Prototyping and Marketing. These schemes would be in addition to Grants for R&D (Smart) and R&D Tax credits.

Do Not Agree 9.4%

Partially Agree 29.6%

Agree 60.9%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

5.1. Technology Community Reaction to Recommendation #3 5.2 61% of respondents agreed with this recommendation. 5.3 A further 30% of respondents were in partial agreement, who supplied additional commentary worthy of note as follows: 5.4 Voucher schemes should also be available to hire commercial contractors, as well as University services. This gives business the choice to find the right partner to deliver the appropriate service, and will encourage the University to price their service at a commercial rate. 5.5 How do Businesses find out what services the Universities have to offer? A simple, national, directory should be established. 5.6 There is a concern that such a voucher scheme masks an underlying problem, which concerns the policy that Universities practise charging through Full Economic Cost (FEC) rates. University rates for services are almost double market rates in some cases. Even with a voucher scheme, the cash would be quickly consumed. 5.7 There was some concern about the expertise within Universities to undertake the task of product development. Universities may be better suited to proof of concept. Improvements should be made within Universities to improve this skill set if we are to use University facilities this way. Notwithstanding, Universities should not lose their primary focus for teaching and research, but if they are to offer commercial services to business, they should look at the support services they offer, and ensure that service levels and quality are in place. 5.8 When contracting services, IP ownership should remain firmly with the company, unless a collaborative partnership is put in place. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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6. Funding the Commercialisation Activity The Governments principal instrument to encourage collaboration between academia and business is the Collaborative R&D programme, delivered through the Technology Strategy Board. The scheme has been running since 2004, then under the management of the DTI. The TSB commissioned a study to evaluate the performance of this programme, published in September 2011. The evaluation report combines both actual and forecast impact results from participants of the CR&D programme, hence the evaluation is both objective and subjective. A summary of key findings is outlined in table 1 below. Table 1 EVALUATION OF COLLABORATIVE RESEARCH & DEVELOPMENT GRANTS—2004—2009 Actual Impact Forecast Impact Number of Projects 396 Value of Grants awarded £195m Participants who reduced costs 5% 34% Participants who increased turnover 9% 53% Participants who increased employment 8% 56% Participants who increased profitability 6% 51% Participants who sought alternative funding before 16% application Participants who sought additional funding after project 32% completion Participants who have or will register a patent as a result of 35% the project FTE’s created 833 13,350 Gross Value Add (GVA) £361m £2,877m GVA per £ spend £0.84 £6.71 Note: Actual & Forecast at the time of the PACEC survey The value of the CR&D scheme can only be judged upon actual results. Given the timescale to get project to market, a considered view of the forecast impact should be made. Taking the forecast impact, the scheme would be seen as a roaring success, performing better than most VC funds, however there are several indicators that suggest that the forecast impact is unlikely to be achieved. Principally, these are: — Given that CR&D has been running since 2004, it would reasonable to expect that early projects would by now have delivered actual results, however this does not appear to be reflected in the results for actual impact. — 68% or Participants cited that the cost of the project was the main barrier preventing the project moving forward without grant funding, however only 16% had sought funding prior to the project, and only 32% sought alternative funding post project. — Since cash is still the key to moving a project forwards towards market launch, and given the low number of participants considering additional finance, it’s reasonable to conclude that not many additional results will materialise, certainly not an 8 fold improvement as forecast by the participants in the evaluation report. — It should also be noted that other, less tangible, benefits of the CR&D programme were mentioned, specifically that the main benefit to participants was an improved image and reputation for participants. — It should also be noted that projects that included two or more academics performed better than those projects without academic participation Given that CR&D is a principal instrument that the Government has to promote collaboration between Academia and Business and therefore to commercialise research or IP, it perhaps time to consider how to improve this programme. Observations concerning the CR&D process include: — Funding is clearly the enabling ingredient that takes an innovative idea to market. The contribution made by the CR&D grant is important, and may move the technology readiness level up a notch or two, but other additional funding from private equity, be it friends, family, business angel or VC, is a clear indicator of market potential. — A major drawback of the CR&D fund is the nature of its inception and delivery. The TSB have to pick “winning” markets or technologies, pre and post competition (a processes in itself that burns valuable resource). cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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— A better proposal would be to let the market pick out the best propositions. An early indication of a projects market value is whether or not private equity will invest. The process of due diligence, when raising capital, tests for market value. A project with additional private funding, matched with CR&D funding, would certainly have a greater chance of success in the market place compared to the current CR&D mechanism, where only 35% of applicants consider raising additional ﬁnance. A sure indicator of the ambition of the project.

Recommendation #4—Funding Academia to Business Collaboration Recommendation—CR&D operates as a co-investment fund, matching private equity pound for pound (with an agreed cap set at £350k—note that CR&D grants of £750k or less were evaluated as being more successful than larger grant awards) This process would also greatly reduce the administration burden associated with the design and execution of the current CR&D mechanism.

16.2% Do Not Agree

Partially Agree 27.7%

Agree 56.2%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

6.1. Technology Community Reaction to Recommendation #4 6.2 56% of respondents agreed with this recommendation. 6.3 A further 28% of respondents were in partial agreement, who supplied additional commentary worthy of note as follows: 6.4 A Co-In-Investment fund would certainly improve due diligence, with private investors evaluating projects. Profits earned from successful projects should be re-invested back into the scheme. 6.5 Careful thought should be give to exit schemes, with options for equity buy back by the originator. 6.6 In the current economic climate, VC money is thin on the ground, and VCs are tending to be risk adverse, meaning that innovative technology projects may favour less well. In this climate, the Government should actually close this market failure, and make up the shortfall in investment, by increasing their contribution to the fund; a 75%/25% fund should be considered, with the Government as the significant partner. 6.7 A cap of £350k is considered too low, and investment should be based upon merit (market potential). The fund should also be applicable for 2nd and 3rd round funding. 6.8 Ensure such a fund does not penalise SME’s, especially start-ups, who may find it difficult to secure VC money. Consider gearing such a scheme towards SMEs, or even consider making such a scheme for SMEs only. 6.9 CR&D, in its current format, is billed as “investor of last resort”, which would explain the low returns generated to date. CR&D can be used by companies as a vehicle to demonstrate that they are investor ready. Given this view, CR&D should be focus on feasibility (smaller, more often), and the TSB should review their administration, which is considered too heavy by participants. Care should be taken by the TSB to avoid the condition of “grant junky”, with some companies cycling repeatedly through the proof of concept phase. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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6.10 The TSB forecast for likely out-turns and performance of the CR&D programme is considered to be wildly optimistic.

6.11 Regarding the report by the TSB that projects with one or more academics is likely to be more successful, it was suggested that what may lie behind this is that larger teams are actually more successful in collaboration.

6.12 The current CR&D scheme disadvantages SMEs. Since academics are funded to 100%, and the scheme can only fund 50% of the project, SME’s often only have 15–20% of their contribution paid. The Full Economic Cost rate applied by Universities also dilutes the beneﬁt of CR&D to SMEs

6.13 CR&D should meet stricter “additionality” rules. Large companies can often fund CR&D projects themselves. Given large companies the break through corporation tax, exclude them from CR&D and make the scheme SME only.

6.14 Survey Respondents who had participated in the CR&D scheme

6.15 28% (65 respondents) conﬁrmed that they had participated in the CR&D programme, (Chart 7), and an analysis of their outcomes they achieved is shown in Chart 8.

6.16 Whilst a smaller sample size than the PACEC report conducted by the, the outcomes are more encouraging, however no cognisance is taken here concerning return on investment.

Chart 7 Participated in a CR&D programme

Yes 28%

No 72% cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Chart 8 Outcomes from CR&D Participants

Raised Further Finance

Increased Employment

Increased Profitability

Developed a new Product or Service

0.0% 20.0% 40.0% 60.0% 80.0%

7. Promoting UK Technology Capability

Despite this being the Olympic year, the UK Government still has a disjointed view when it comes to promoting UK excellence, whether that be to overseas visitors, or showcasing UK Innovation.

In this space, two principal exhibitions and conferences are funding by the Government with considerable budgets, Innovate, from the Technology Strategy Board; an event that looks at the inward market and focuses on the value of the TSB, and TechWorld, from UKTI, focusing on showcasing UK capability to overseas visitors, with an emphasis on exports.

Both are sub-optimal, and this year may even compete with larger, established events such as electronica.

Simon Payne, from the Cambridge Technology Group, expresses the landscape, with regards to technology exhibitions, very well in his letter, directly to ETN members

Recommendation #5—Promoting UK Technology Capability

UKTI and the TSB should merge their two events into one showcasing the best UK Innovations from Business and University Research to an International audience. The event should be staged as “UK TechWeek”, and should be planned to coincide with other regional UK events such as National Electronics Week (NEW) or other conferences and exhibitions, enabling overseas delegates to travel throughout the UK visit to sample speciﬁc market or technology strengths cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Do Not Agree 8.4%

Partially Agree 21.5%

Agree 70.0%

0.0% 20.0% 40.0% 60.0% 80.0%

7.1 Technology Community Reaction to Recommendation #5

7.2 70% of respondents agreed with this recommendation. Signiﬁcant support from industry for a combined event (between the TSB and Innovate). Only 8% disagree.

7.3 A further 22% of respondents were in partial agreement, who supplied additional commentary worthy of note as follows:

7.4 A “UK-TechWeek” would require wide appeal and diversity; SME’s would focus on their niche, but this would give international visitors an opportunity to review the depth and breadth of innovation in the UK. The week should have regional events and should not focus on events in the south.

7.5 Conferences and Lectures should be dropped, freeing up time for businesses to pitch.

7.6 A better investment would be to increase the investment into UK Pavilions at already established overseas events, discounting the cost of exhibiting for UK SMEs.

7.7 Content should be “Business Educational”; the event must attract overseas visitors.

7.8 Overseas visitors must be real business, not just the embassy or UKTI representatives.

7.9 Would Respondents attend such an event?

7.10 Table 2 illustrates the respondents view if a combined event was co-hosted, and indicates that attendance would double, when compared to Innovate, and would treble, when compared to TechWorld.

7.11 This is a strong endorsement to combine the events, create critical mass and save the taxpayer some money in the process.

Table 2 Attend a Proposed UK-TechWeek Yes 181 No 56

Attended Innovate Yes 98 No 139

Attended TechWorld Yes 56 No 181 February 2012 cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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APPENDIX 1

LIST OF PARTICIPATING COMPANIES 3D Metrics ETher NDE Ltd. 4d-dynamics.net Evince Technology Ltd A2E Limited FINNbiz Consultants Abatis (UK) Ltd Futureneering Ltd Abington Partners G4h Limited ActiveSignal Ltd GaN Systems ltd AOS Technology Ltd Geotechnical Instruments AQ Technology Ltd Grounded Innovation Ltd. ARM Ltd. Guy’s and St Thomas’ Charity Arts & Science Health Protection Agency B J O’Connor International Heat Light and Sound Beer & Partners Limited Herald Electronics Ltd Black Kite Ltd. High Tech Marketing BMT Defence Services Hosokawa Micron Limited Brnikat Ltd i4vision diagnostics Calderwood Han Limited ideaSpace Enterprise Accelerator Cambridge Carbon Capture Ltd. Imetab Ltd Cambridge Insitu Limited Industrial Microwave Services Limited CambridgeIP InnovationXchange (IXC) UK CapnaDSP Ltd. Institute of System Level Integration Cashmaster International Limited Intellectual Capital Group Centre for Process Innovation Intelligent & Green Systems Ltd. Centre for Science and Policy iQudos Ltd Charis Technology Ltd. ITACS LIMITED Charles University in Prague ITRI Ltd Chronos Technology Ltd Joseph Rhodes Limited. Cognidox Ltd JRI Orthopaedics Ltd Cranﬁeld University JTL Systems Ltd. Critical Software Technologies Ltd Ketonex Limited Data Track Technology plc krowdthink ltd DCN CORPORATION Limited Lab-Tools Ltd. Deltex Medical Lime Tree Innovation DriveWorks Ltd LogicaTronics Limited Durham University Logystyx UK Limited E. A. Technical Services Ltd. Maiden Technology e2v technologies (uk) ltd. Maltron international Ltd Earlswood Marketing Limited Marine South East Ltd easeltechnologies limited MAST Carbon International Ltd. Electronica Estrella Azul MeddiQuest Limited enteric Medical Wireless Sensing Ltd. Enterprise Q Ltd. Megger Instruments Limited Moog Components Tallix Ltd. National Instruments UK Telepure Limited Newcastle University Terraﬁx Limited Newton Industrial Group Ltd The Innovation Agency NHS Innovations South East Ltd The-MTC.org Northumbria University The Real-Time Data Company Ltd Novacem Limited The TALL Group of Companies NXP Semiconductors UK Ltd TISICS Ltd. Titanium Composites Ocado Technology Tony Smee Onzo Ltd. Tosoh Quartz Oxford RF Sensors Ltd Trelleborg Industrial AVS Oxley Dev Co Ltd Tribosonics Ltd Peakdale Molecular TruPort International Limited Peratech Ltd Trusted Renewables Perpetuum Ltd. Turbopowersystems Ltd Pickering Interfaces Ltd. University of Birmingham Picochip University of Exeter Planer plc University of Kent Plextek Ltd University of Leicester Policy Review TV University of Portsmouth Powertrain Ltd uPBeat Product Development PragmatIC Printing Ltd Vapourtec Premiertask Ltd Vecta Consulting Limited cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Procter & Gamble Veraz Ltd RAUMEDIC UK Ltd Vision 20 20 Group Ltd. Reactive Technologies Ltd Warren Services Rilton Electronics UK Ltd Wessex Technology Rodwell Engineering Group Ltd XJTAG Sandford & Associates YTKO Scottish Technology Network Ziconix Ltd. Sensatech Research Ltd Shelton Machines Ltd. Si-Light Technologies Smart Sensors Ltd Smith & Nephew Soft Edge Technologies Ltd Sollerta Ltd Sound Experience Ltd StepOut Ltd Stored Energy Technology Ltd Swansea University

Written evidence submitted by University College London UCL 0. Introduction 0.1 UCL is a world-leading research-intensive university with a turnover of ca £800 million of which approximately £400 million is attributable to research. The university employs over 4,000 active researchers covering a wide range of disciplines from Biomedicine through to Arts and Humanities. The results of UCL’s research are principally disseminated through publications in learned journals, conferences, and the media. UCL is engaged with industry and undertakes collaborative research and contract research, and has a strong record in Knowledge Transfer Partnerships. These activities also act to disseminate the outcomes from its research. 0.2 UCL has a strong track record in the commercialisation of its research and is committed to extending and enhancing its ability to do so. Commercialisation of research can often provide the most effective method for ensuring maximal societal benefit from the research activity and is therefore an important but not sole element of the impact agenda. UCL has an integrated approach to maximising economic and societal benefit from academic activities as described in the UCL Enterprise strategy.129 0.3 UCL has created a wholly owned subsidiary UCL Business Plc (UCLB) to facilitate the process of protection and commercialisation of Intellectual Property (IP) and to act as its Technology Transfer Office (TTO). UCLB uses the full range of approaches to ensure effective commercialisation including licensing, creation of spin-out companies and project development. Further information on the activities of UCLB is available in our Declaration of Interests (paras 8.1–8.3). The responses below have been collated from a number of individuals involved in the process of commercialisation and reflect our experiences at UCL.

1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 1.1 It is important that a realistic value is placed on IP to reflect the development costs in getting to market. Appropriate steps should be taken by universities to maintain the possible commercial value of IP in order that funds can be raised to cover development cost, especially when developing open access and Easy Access IP policies. 1.2 By international comparison the investment by UK industry into research of UK universities is low and this is likely to negatively impact on prospects for maximal exploitation of IP from UK universities by UK companies. 1.3 The commercialisation process will vary significantly from discipline to discipline and sector to sector and university TTOs need to have a good coverage of experts across those sectors. 1.4 Early phase proof-of-concept (POC) funding is very important, particularly to establish technical feasibility. Research Council (RCUK) schemes are well developed (eg Follow-on Fund) and many charities provide specific opportunities to provide support for technical developments (translational awards). Universities often also create their own POC funding sources, but this is an area where further investment would be beneficial. POC funding can provide opportunities for encouraging a greater degree of innovation within universities and provision could offer considerable value for a modest investment. Sector-specific issues on finding early stage funding are discussed below (paras 2.4–2.5). 1.5 Angel, Venture Capital (VC) and Private equity funds tend to concentrate on spin-outs and start ups. These are generally selective individual investments, which can be time consuming to structure. Over the last 10 years various structured partnerships have developed for investment in university IP, eg IP Group, as well 129 www.ucl.ac.uk/enterprise/enterprise-views/enterprise-strategy cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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as institutions developing their own dedicated funds. It is too early to say whether these collective investment proposals are going to be a success. However, such initiatives should be encouraged as they add to the UK investment ecosystem generally. 1.6 It is clear that past experiences of ﬂoating companies precipitously on the Alternative Investment Market as a means of securing funding for commercialisation has in general not been a success. Some of these companies will need to be encouraged to revert back to private ownership to ensure management commitment and focus is retained.

2 Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 2.1 In Life Sciences some emerging technologies are at a significant disadvantage eg gene therapy and regenerative medicine (stem cell technologies in particular where there is ongoing debate about ethics and patents). A number of other technologies may suffer because of regulatory hurdles (for example, designing clinical trial models to test hypotheses in cardiology could be difficult and costly, and Alzheimer’s trials could be very long term). Orphan indications and those treatments with small markets or diseases affecting the third world remain difficult areas. 2.2 Improving the regulatory pathway and reducing time to market is and continues to be a major hurdle for therapeutic and drug discovery programmes. There is an ongoing need to balance patient/user safety against unnecessary and burdensome costs. For example the recent proposed increase in regulation around electronic software used in medical devices is seen as adding to the commercialisation process. 2.3 The traditional ways of drug discovery are also being challenged as are the structure of pharmaceuticals companies with much of their Research and Development being outsourced. Mergers and rationalisations remain an ongoing challenge to commercialisation as do decisions taken by some to cease activities in certain areas or close down operations (eg Pfizer’s closure of its site at Sandwich). 2.4 Funding early stage commercialisation propositions in non-Life Sciences areas is, in our view, less developed with many good but seemingly un-coordinated schemes run by RCUK, Technology Strategy Board (TSB), and the European Commission. Better co-ordination similar to that being proposed between the TSB and the Medical Research Council (MRC) over the new Biocatalyst fund would be desirable. 2.5 More significant funding required for those areas with a long development path remains a significant issue. However in the case of Life Sciences, there are considerable positive developments. The availability of translational research funding eg MRC Translational grants, Seeding Drug Discovery awards by the Wellcome Trust (WT), and the various calls for funding provided through the National Institutes of Health Research, have significantly improved the position where it is now possible to develop ideas within a university environment to a stage where “first in man” studies can be carried out, prior to licensing to pharmaceutical/biotechnology/ diagnostic and device companies. We highlight the key role played by the MRC in its approach to funding the “Development Pathway” through its Development Pathway Funding Scheme (DPFS) and the recent proposal to consolidate this with its Developmental Clinical Studies (DCS) scheme provides a good illustration of joined-up approach to funding long term development projects. The recently announced joint Biomedical Catalyst Fund (BCF) between the TSB and MRC looks to improve the position for SMEs.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 3.1 There are many reasons why UK based research is transferred outside for commercialisation but principally these relate to financing (investor foresight and appetite for risk), availability of facilities/ infrastructure and management and access to markets. Three recent examples include: 3.1.1 Biovex Inc—a UCL spin out developing cancer vaccines transferred to the US in search of significant funding which it secured. The company was subsequently acquired in January 2010 by Amgen in a deal worth $1 billion. 3.1.2 Ocera Therapeutics Inc based in the US acquired a licence from UCLB for a novel therapeutic for liver failure and has raised significant funding to progress its clinical trials in the US. 3.1.3 UCLB licensed a novel carbon nanotubes technology to the Linde Group in 2011 after struggling to find UK interest in the idea. Commercialisation will now proceed in the US and Germany. 3.2 Examples of other UCL spin-outs based on UCL’s research being acquired by overseas companies include PolyMASC Plc, acquired by Urigen Inc in 2000 and Nervation Limited, acquired by Le Maitre Inc. in 2002.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 4.1 It is clear that the government is taking many steps to try and help improve the commercialisation of research and there is evidence from HEFCE that the provision of speciﬁc funds via the Higher Education cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Innovation Fund (HEIF) has had a significant positive benefit on the commercialisation process along with other areas of related activity. 4.2 The development of impact as an integral part of the Research Excellence Framework (REF) is welcome as it provides a stimulus for universities to put in place processes to track the long term outcomes of research translation and to encourage innovation. 4.3 The use of income to the university as a proxy for activity and success of the commercialisation process is not always helpful because often the university financial interest in IP may have necessarily been diluted in order to raise development capital. More important is to gain some measure of the total value of business developed as a consequence of the commercialisation process. 4.4 The TSB’s role is important in funding businesses to work with universities that have developed IP. There is a high level of expectation for the recently announced Catapult centres to help bridge the gap between university research and business. Initiatives to allow universities developing IP themselves without a business partner (eg for a licensing opportunity) to access TSB funding would be welcomed. 4.5 RCUK and others have been provided with funds which have been used to develop useful new models for engagement between universities and business. The Innovation and Knowledge Centres are good examples of constructing new centres to promote collaboration, which should in turn lead to a greater level of commercialisation. The MRC is highlighted as an exemplar for providing a joined-up approach.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 5.1 Valley of death refers to the period a company goes through after its first financing whilst it is working to get its products to market, generate cash and become successful. This period is generally fraught with difficulties including negative cash flows (which if uncontrolled will result in failure) but also significant ongoing research and development risk, regulatory hurdles, management challenges and competition. It is a necessary process. Many companies and ideas will fail and only some will survive. 5.2 The government has set in place a number of important and potentially helpful initiatives in the Innovation and Research Strategy and the Life Sciences strategy: 5.2.1 Funding: For example the reintroduction of Smart awards, introduction of high profile (and substantive prizes), the stratified medicine fund and the Biomedical Catalyst fund. These are all important but need to be seen as ways of supporting ventures at a relatively early stage. It would be helpful to give further consideration to potential government financial interventions further down the development path. There are opportunities for developing this area further and we note the commitments to extending support for Venture Capital, including £200 million for Enterprise Capital Funds but believe that there is a strong case for further investment. 5.2.2 Regulation and access: It is important that we find routes to nurture SMEs and provide them with business opportunities to maintain their viability during the early phases of their development. Thus we welcome the extension of the SBRI scheme and the aspirations to improve the regulatory framework in the Life Sciences strategy. We also welcome the government approach to access to data which will provide a stimulus to develop new IP required to develop new business models to take advantage of open data. 5.2.3 Tax: The small companyR&Dtaxcredits changes are welcome as are the proposals for the Patent Box which will encourage investment in the UK. We also welcome the recent VAT exemption on cost sharing.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 6.1 Yes. More funding for the technology growth sector is good. However, the funds need to be provided to those that are best able to deploy them in the most efﬁcient manner. 6.2 A re-launch of the University Challenge Funds is something that many universities including UCL have championed. This was an early experiment with good outcomes and should be reconsidered. 6.3 Biotechnology Industry Association (BIA) have proposed a Citizens Innovation Fund through a retail offering providing tax incentives to private investors. We support this venture in principle but see some operational and tax issues that need resolution, the government could help with this. 6.4 In the longer term we believe there is a need to encourage funds to encourage royalty buy-outs. These should be similar to those that exist in the US, for example Cowen Healthcare Royalty Partners recently raised $1 billion.130 We would also welcome better transparency over previous initiatives, for example the £325 million UK Innovation Investment Fund which was launched in 2009. The European Investment Fund is administering £200 million as the UK Futures Technology Fund and £125 million is being administered by 130 www.cowenroyalty.com/content/news/releases/010512.htm cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Hermes Private Equity as the Hermes Environmental Fund. Both are operated as Fund of Funds and their success (or otherwise) has been difﬁcult to establish.

7 What other types of investment or support should the Government develop? 7.1 In the context of the current economic climate we recognise the considerable ongoing commitment that government has shown to research and innovation. The following suggestions are low cost and high value: 7.1.1 Encouraging collaboration and sharing services between universities: We suggest that there be incentives to encourage further collaboration between universities. For example large research- intensive universities could be encouraged to provide TTO services to smaller organisations unable to justify infrastructure. A simple mechanism would be to identify a small number of leading universities and raise the HEIF cap in order to provide TTO services to smaller local HEIs. 7.1.2 Proof of concept funding: .Alongside 7.1.1 it would be beneficial to consider specific investment in POC funding for a small number of leading universities with the appropriate levels of capacity. For example an investment of £20 million per annum would allow the establishment of 10–20 POC regional funds. There could be a requirement to make these available to local smaller HEIs. 7.1.3 Easy Access IP: We recommend that a study is commissioned to clarify the likely impact of Easy Access IP policies being pursued by some universities. Although there is merit in some of these schemes it is important that they are sufficiently well constructed to ensure that they maximise benefit to the UK economy. 7.1.4 Venture Capital funding: See 6.2–6.4 above.

8. Declaration of Interests 8.1 UCL has a strong track record in the commercialisation of its research and is committed to extending and enhancing its ability to do so. UCL has created a wholly owned subsidiary UCL Business Plc (UCLB) to facilitate the process of protection and commercialisation of Intellectual Property (IP). UCLB uses the full range of approaches to ensure effective commercialisation including licensing, creation of spin-out companies and project development. Where there are technologies which (for whatever reason) cannot be progressed within UCLB, it is common practice to facilitate the orderly transfer of such ideas to others who may be better placed to commercialise those ideas. These could be external parties or the UCL inventors themselves. 8.2 UCLB functions as UCL’s TTO but does significantly more than transferring ideas out. The company operates independently, employing 45 members of staff whose function, amongst other enterprise related activities, includes working with UCL’s researchers to commercialise ideas from the very early stages through to market. This process includes provision of funding (both POC and assistance with application for external translational grants) developing a patent strategy, researching and understanding markets, formulating regulatory pathways where appropriate and finding commercialisation partners. UCLB’s staff are well experienced in the process and are supplemented by external consultants, patent agents and lawyers as necessary. The UCLB aim is to de-risk novel commercial propositions whilst identifying the most appropriate commercialisation route to ensure ideas emanating from UCL’s research are developed for economic and societal benefit. 8.3 UCLB has been engaged in raising investment funds for commercialisation projects, including a partnership with Imperial Innovations to raise £140 million to be invested in spin outs from Imperial College. University of Oxford, University of Cambridge and UCL. February 2012

Written evidence submitted by Ian Phillips 1. What are the difﬁculties of funding the commercialisation of research, and how can they be overcome? The simple model of transfer of technology to commercial exploitation is broken. Research Outcomes are (very) seldom products in their own right. Mostly the “technology” they produce is useful to enable options in products which may or may not offer a commercial advantage. Other options may well come from known science, methods etc in other domains. Innovation, is creation of market forming or mould breaking products, using technologies which are “known”. Business should be risk averse so introduction of new technologies should be discouraged in the route to proﬁt.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? It is always difficult to commercialise research outcomes where the application (commercialisation) domain is not obvious (See Laser and text-messaging). However some of the best outcomes are applicable in a wide area of domains (eg: RF, LCD, Integrated Circuits, CPUs), so tend not to be seen as advantageous to any cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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speciﬁc one. These spend unavoidable time in the ‘hinterland’ waiting for the market to call for the technology that they provide. The wait can sometimes be unaffordable.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

The Computer, but there are other examples: Yet it can be argued (justifiably) that it is only some parts of this that have transferred out of the UK, and also that other parts of it in the UK have benefited from advancements which were made elsewhere. No technology is ever truly invented in one country or exported to another for exploitation ... its just not that easy. The transfer of ‘parts’ of technology to other areas of the world (within and beyond the UK) is for the same reasons under all circumstances is that to do so makes better business sense. That can be financial, it can be employment costs, or regulatory, or availability of appropriate skills, or availability of appropriate infrastructure. The ultimate decision will also be dependent on the nature of the product which is to be made (including that ‘part’ that left the UK), and the predispositions of the business itself. In other words it is impossible to identify a single item. However if competition in Commoditised products is your aim, then the availability of large amounts of finance is a requisite; By comparison if exploitation of high-valued skills/capabilities (such as ARM) then the education and mindset of the workforce is a requisite. Bear in mind that most bigger businesses/Institutions and a lot of smaller ones are international, themselves and work freely with international customers ... then the idea of (UK) nationality is almost nonexistent within their culture.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

There is little evidence of this, but that doesn’t mean it is not a good thing. You have to have appropriate expectations. (See also my answer to Q1). UK Research outcomes may well have become significantly better in quality and availability (which I believe!) and they may have been adopted in the UK and beyond (and don’t forget that 99% of the world is outside the UK!). Even so, new products take typically three years to go from concept to production, and new technologies must be product-ready before they can be used in product development ... that makes min of ~six years for something to move out of Research and appear in a Product. But research itself is not a case of picking up the answer ... it takes time. So from the first EPSRC grant to being used in a Product is at least 10 years, for good performance in this criteria. Typically it will be significantly longer ... and the worse cases much much longer. THIS IS NOT A FAILURE, complex things take a time. ARM IPO’d in 1991, our product came out of the BBC Computers in Schools program in the 1980s, and was based on research work done 10 years before that.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

The valley of death is a misguided model created by the semiconductor FAB guys to help them get funding for transfer of process development into FABs. At that stage it is not research at all, but the process of setting up production ... The outcomes of academic research will never be as complete as the “development process” which is being transferred into production. Research outcomes will relate to components (eg photolithography) which is used within such.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved?

No. Private investors know what they are doing with their money. They do not invest in bad opportunities and it is inappropriate to strongly inﬂuence this (See the Banking crisis). Government has a role to assure that the ‘primeval swamp’ is stocked with a set of well educated world-class researchers and educators, who provide our share of knowledge into this commercialisation pool, and maintain our independence from others who without our world-position may be in position to exploit our lack, because our contribution would not threaten them in return.

7. What other types of investment or support should the Government develop?

The Government should be prepared to pick winners, and should not “chase the ball”. Support and develop what we are good at in the UK, don’t try to change us to be ‘somebody else’. Replication of other countries model of success can only ever be successful if you are prepared to make huge ﬁnancial investments to change culture, education and industries ... And you can only displace the incumbents if you exceed theirs. Much better cheaper and sustainable to develop what you are good at !!! February 2012 cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Written evidence submitted by Plymouth Marine Laboratory Applications Ltd This document has been prepared by PML Applications Ltd, a wholly owned trading subsidiary of Plymouth Marine Laboratory.131 Plymouth Marine Laboratory (PML) is an independent marine research laboratory and undertakes leading international research to respond to societal needs and to promote stewardship of the world ocean. PML provides capability for observing, modelling, understanding and forecasting marine ecosystems. Operating in an interdisciplinary way PML is uniquely placed to undertake research, provide advice and deliver outcomes on the key challenges facing society in relation to global change and sustainability of marine ecosystems. PML is also designated as a National Capability delivery partner for the Natural Environment Research Council, providing a strategic research capability in marine science and Earth observation for the UK. PML Applications was established in 2002 to broaden the application of PML’s research products and to drive the process of knowledge transfer, identifying and bringing to market the next generation of innovation and products.132

What are the difficulties of funding the commercialisation of research, and how can they be overcome? The commercialisation of research takes place, fundamentally, in one of two forms: — Through a form of targeted research or provision of specialist consultancy services that are focused and often guided by an industrial partner with a particular challenge to overcome. — Through the development of some form of “product”that can then be further developed and released onto the open market. The definition or product can range from new chemical or extract, a new process or procedure, through new equipment, instrumentation, software to the provision of new services. In very general terms, scientists tend not to be entrepreneurial in nature. They are great discoverers and having made an initial discovery tend to quickly move on in search of the next. They are driven largely by academic prowess and their currency is a publications record. Rather than consider the potential for commercial application of their discoveries and manage their intellectual property accordingly, their first reaction is to seek to publish their discovery. Entrepreneurs have a very different culture. They tend to see commercial opportunities through combining different discoveries in unique ways to create novel solutions. Lack of understanding of the “route to product development” in scientists and pressures to publish are key barriers to more entrepreneurial behaviour. Development of simple business models, licence agreements and exploitation advice are fundamental in facilitating the commercialisation. Model agreements for management of IP, providing equitable returns to the inventors would help greatly. It is important to make it easier for scientists to commercialise discoveries and to be incentivised by appropriate rewards that should counter the inability to earn scientific currency (ie publish) whilst managing intellectual property. On making a discovery scientists should ask themselves first—“is there an application for this, because I have an easy route-map to help me exploit it, if not then I will publish?” Secondly there are difficulties in understanding what industry needs. Research institutes need better guidance from industry to identify problems and opportunities that can be developed in partnership—ie the provision of industry-pull. The opposite is true; academia needs to improve links with industry to demonstrate emerging skills. Closer links are required together with a mechanism for actively engaging and exposing industry and academia to solutions and skills outside of the usual industry sectors—eg the food industry engaging with marine science where novel products and reagents may be harvested from an underutilised marine resource. Having identified a potential commercial application for a discovery the challenge is how to develop this into a product. This requires a feasibility study. Most state funded feasibility studies require industry partners and cap funding to a proportion of the cost of assessment and development. Whilst this is fine for the more mature opportunities—ie those closest to market that are likely to be attractive to private equity—it does not work for those early concepts that require some focussed research to get to the next stage. Partial funding, coupled with difficulties in finding partners willing to sign-up to this type of higher risk funding, create a barrier as research organisations rarely have the additional funds to develop proof of concept to such a stage that it becomes attractive to partners. Proof of concept funding should therefore be a target area, with associated conditions (eg tax incentives) that attract industry partners.

Are there specific science and engineering sectors where it is particularly difficult to commercialise research? It is particularly difficult to commercialise marine ecological research. The marine environment provides an untapped wealth of resources—particularly with respect to its microbial and algal communities. In general, markets for potential use of these resources are not clearly defined and in many cases there is direct competition with hydrocarbon derived products, creating both an opportunity and a very established incumbent technology. There is a limited track record of commercialisation of this science. A few niche markets have been developed—usually by very entrepreneurial inventors/scientists themselves—but in general, the potential of these resources is poorly understood by industry and often perceived as having high entry costs. 131 www.pml.ac.uk 132 www.pml-applications.co.uk/ cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Comments of forums for industry engagement and “Godfathering partnerships” refer.

What if any examples of UK based research being transferred abroad PML has excellent knowledge of marine bacteria, benthic ecology, ecological succession and water quality. It is a world leader in some of these areas. These skills when combined provide the relevant tools to develop novel technologies to manage ballast water. New legislation is being developed and more stringent ballast water management standards are required. In turn these require new technologies. A signiﬁcant privately funded research opportunity into the development of these new technologies has been transferred to a European institution on account of better state funding conditions at the proof of concept stage and the presence of stronger links with academia and industry partners that are likely to take up the new technology.

What evidence is there that Government and TSB initiatives have improved commercialisation This is a question of timing. For those opportunities relatively closer to market, requiring feasibility studies and market development, it is clear that initiatives have worked. We have also been very successful with earl stage funding. PSRE funding has also allowed us to screen some of our marine bacteria and micro algae resources and identify biotechnology opportunities. This has been essentially a “new raw material” search. New compounds and natural bioactivities (eg antibiotic properties, natural biosurfactants, natural sunscreens) have been identiﬁed. Additional funding is required for proof of concept and further development. Similarly PSRE funding has allowed us to combine core scientiﬁc skills in unique ways to develop services in ballast water management and anti-fouling technologies relevant to the shipping and marine renewables industries. These services range from consultancy and expert witness advice, through to testing and development of new coatings and equipment. PSRE funding has been successful in early stage commercialisation in our organisation. It has pump-primed the development of a successful business stream that in turn feeds income to our more fundamental research. In addition to providing the funding for targeted research, it has been used to develop commercial skills in our scientists, as well as developing strong links with industry. A number of new services and potential products have been developed and more industry partners are being sought. However, the challenge remains to source funds and partners to take these new opportunities past proof of concept and into early feasibility. It is important to understand that the commercialisation of science has a long life cycle. Ten years of development from concept though to product is not uncommon. Funding strategies therefore need to be long term.

What impact will the Government’s initiative bring The ability to undertake proof of concept early research that can be used to attract industry partners for joint targeted research and commercialisation. For example, France’s marine research is largely state funded and this provides the ability to offer industry a range of development opportunities, generally at more advanced stages than available in the UK.

Should UK encourage more private equity investment Yes—but this needs to be targeted at early commercialisation, not the close to market opportunities that are usually funded by private equity.

What other types of investment should the Government develop 1. Equivalent PSRE funding to encourage early and proof of concept targeted research. This should be linked with industry partnerships that support out-sourcing of early development. As the IP develops, the partnership will naturally strengthen and will cascade ownership and employment towards industry as these opportunities become closer to being exploited. This funding should be seen as Government support for industry and not a mechanism to prop-up academia. 2. Funding to develop industry/academia partnerships. This should include a mechanism to actively scan developing research and IP, and then to actively promote these emerging skills to industry. These introductions can then foster the development of stronger links and potential partnerships. Conversely the mechanism should improve communication of industry requirements to academia. 3. The development of a set of tools or provision of business and commercial advice that makes it easy for scientists to exploit IP. Examples could include template licence agreements and business models that give conﬁdence to the scientists that they will be fairly rewarded for their invention. These would set out best cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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practice and illustrate the “going-rate”, thereby avoiding suspicion of having ideas “ripped-off” or exported by industry. February 2012

Written evidence submitted by STFC Innovations Limited Background 1. STFC Innovations Limited (SIL) is a company that undertakes commercialisation, IP management and innovation support for the Science and Technology Facilities Council (STFC). The STFC is one of the seven UK Research Councils. SIL was established in 2002, is wholly-owned by STFC, and operates at the major laboratory locations at the Rutherford Appleton Laboratory in Oxfordshire, Daresbury Laboratory in Cheshire and the UK Astronomy Technology Centre in Edinburgh. 2. SIL’s priority is to “Realise the innovative capacity of STFC’s science and research facilities to support the growth of a high technology UK economy”. The STFC is one of Europe’s largest multidisciplinary research organisations supporting scientists and engineers world-wide in the physical sciences. STFC operates major international research facilities and manages international research projects in support of a broad cross-section of the UK research community, in addition to directing, coordinating and funding research, education and training. 3. SIL currently has a portfolio of 56 patent families of which many are already licensed to spin-out companies. Since being set up, SIL has launched 15 spin-out companies, which together last year employed 88 people in high technology jobs in the UK. Several of these companies have the potential for substantial and rapid economic growth.

Q1. What are the key difficulties of funding the commercialisation of research and how can they be overcome? 4. The main issues in obtaining commercialisation funding are: (a). The high-risk/uncertain reward of pre-turnover companies. (b) The difficulty in finding high-quality commercial management teams, given the limited salaries available and uncertain reward. (c) The “language barrier” that exists between academics and industrialists/financiers. These issues can be compounded by the challenge in producing high-quality business plans and some natural reticence in the research community to market their ideas and products. 5. These problems are difficult to solve in their entirety. Some possible ways to challenge these problems include: (a) Using government-sponsored or government-partnered special, early-stage funding vehicles, accepting the high risk/uncertain reward characteristics of such early-stage investments. (b) Hiring professional CEOs who have proven track records and can run or monitor a number of these investments or at least serve to mentor the available CEOs for these companies. A board of professional directors can also be of substantial assistance. (c) Ensuring that there is an appropriate interface between academics and industrialists/financiers, in the same way that SIL has executive non-academics that liaise with the researchers and the potential investors. There is also a need to continually work with the research community so that there is no sense that an academic is “selling out” by being involved with commercialisation. (d) The production of template business plans that can be acceptable to potential investors. (e) The use of dedicated marketing groups within research councils that can assist in marketing ideas to establish their attractiveness to industry. 6. SIL recognises that there are a wide range of challenges in the funding of the commercialisation of research, which affect the entire innovation spectrum. Such funding issues are a particular issue at the early stages of technology-based opportunities, in large part due to the risk (in technology, market and execution) associated with this phase. SIL has been addressing the funding gap in early stage technology business development in a number of ways: (a) A variety of funding mechanisms and programmes are offered to encourage and promote innovation from STFC laboratories.”Proof of concept” funding has proved to be particularly important in developing new opportunities. As the appetite of commercial funding sources for early stage technology has reduced over the last few years, it has become important to be able to develop opportunities further than was previously required. This “proof of concept” funding was originally provided directly from BIS, but more recently has come from STFC funding, and is currently around £1.5 million/year. SIL believes, based on experience, that there is an important and increasing requirement to develop opportunities both technically and in terms of market application before commercial investment can be generated. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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(b) The Rainbow Seed Fund (RSF) was launched in May 2002 and comprises a partnership of publicly funded research laboratories with £10 million funding provided by the Department of Business, Innovation and Skills. SIL is heavily involved with the RSF, which provides investment to support the early stages of commercialisation of technology and services from its partners, which include STFC, NERC, BBSRC, and the Defence Science and Technology Laboratory (DSTL). RSF makes investments of up to £500,000 in promising spin-out companies and acts as a catalyst for further investment from our sources. The RSF has directly invested £6.5 million in early-stage companies since 2002, and this has attracted over £110 million in co-investment from a range of investors from angels to overseas corporate investors elsewhere. SIL believes that the RSF is an excellent mechanism in early stage funding of new technology companies, having been proven to be effective and efficient, and would support additional funding going into the Fund, so that the activities of the fund can continue and be expanded. (c) The affordability and availability of suitable business accommodation for early stage technology businesses can be an important factor in their growth. In the journey—typically from one or two people and an idea through to viable commercial company with 10s or 100s of employees there are several different types of accommodation required. Initially this might be the corner of a shared office, then moving into a small incubator office, then into an innovation unit as the company becomes established, perhaps ultimately requiring land for purpose-built accomodation. This “home for life” approach requires a spectrum of types of accommodation, and it is both attractive and efficient if this is available at one location. At the Daresbury and Harwell science and innovation campuses the availability of technical facilities and access to expertise is a significant advantage to the growing business, often enabling the business to use its precious investment capital in more efficient ways. (d) The “Innovation Technology Access Centre” (ITAC) concept developed at STFC offers fully equipped space for innovation, research and development, with flexible access to offices, laboratory space, clean rooms, workshops, “hot-labs” and high specification scientific equipment. ITAC at Daresbury, opened in 2010, provides laboratory facilities for 20 SMEs across a range of sectors including biomedical and energy. 32 new high tech jobs have been created and £8.5 million in investment has been won by the companies since locating onto the Campus. Technologies being developed within the facility include cleaning products to combat bugs including MRSA, a portable TB test, green technologies that make oil extraction cleaner, and a low-carbon alternative to coal that could fuel existing coalfired power stations. The ITAC model is now also in operation at Harwell Oxford. (e) The European Space Agency (ESA) Business Incubation Centre is located at Harwell Oxford and is managed by SIL. This is designed to broaden the market for space industry by translating space technologies, applications and services into viable business ideas in the non-space marketplace and to create new business opportunities and jobs for non-space companies. 10 companies have been accepted into the programme in the first year of operation. The scheme provides funding to companies that are accepted into the incubator, together with links into the technical expertise of ESA and STFC. SIL believes that such schemes are valuable and effective, and will seek to develop and implement more such “business incubation centres”. (f) As institutional venture capital has moved away from early stage technology opportunities, the role of private “angel” investors has become more important. SIL believes this is something to be encouraged by (a) making the tax environment attractive to individual investors in early stage companies, (b) by supporting angel investor networks and (c) by providing public support for co-investment funds.

Q2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors?

7. Yes. Those sectors which have no “obvious” practical application are difficult to commercialise. These sectors are often involved in very long-term experiements, for example particle physics or astronomy. Whilst there is no “obvious” practical application for such research, the spin-off opportunities are potentially tremendous, for example the application of particle accelerator technology in MRI machines. A serious difficulty in extracting commercial spin-off opportunities include the lack of individuals dedicated to figuring out how practical applications can be derived from an indirect application of research technology. In addition it is difficult to get the “attention” of researchers to develop such indirect applications when their core role— and indeed grant funding—is dedicated to primary research. Market sectors with inherently long adoption times for new technologies or products are difficult to address for technology companies using venture funding. An example would be introducing new technology into the aerospace industry. A long route to production revenue is not likely to be attractive to investors, unless the ultimate rewards can be particularly large. In an environment where investors face a wide choice of investment options, those with long and risky returns are difficult to fund. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Q3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 8. SIL does not have direct experience of UK-based research having to be transferred outside the UK for commercialisation. One of our spin-out companies has recently raised US investment and has since opened a facility in the Kennedy Space Centre in Florida, but that is in addition to their activities in the UK, and we see no reason why the two locations should not develop together, in a complementary manner.

Q4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 9. SIL believes that there is good evidence to support the positive impact that the Government and TSB initiatives have had in improving the commercialisation of research in the UK. A particular example in which there were many different support mechanisms is the development of the spin-out company, Cobalt Light Systems Ltd. This has been supported through a number of separate initiatives operated by the STFC, Rainbow Seed Fund, National Endownment for Science Technology and the Arts (NESTA), the TSB and the South East England Development Agency (SEEDA). As such Cobalt has been able to take advantage of the support offered by Government through these schemes to develop its business and attract private equity investment. The story of Cobalt includes: — The technology on which Cobalt Light Systems Ltd is based has its roots in the work of a STFC research scientist working for extended period on advanced spectroscopy, including grant-funded research collaborating with universities. It is very difﬁcult to quantify the value of this ground-breaking work, including the many years of research, that led up to the company being established. — When commercial potential became apparent “proof of concept” funding was used to develop possible applications (some of the “proof of concept” funding having been given as an award from BIS), and staff working for SIL worked on developing the opportunity. — At an early stage (before company formation) there were small investments from Rainbow Seed Fund (the fund is based on money from BIS but independently managed) and NESTA (these investments were converted into shareholdings when the company was set up). — When the business was set up investors included the Rainbow Seed Fund and Oxford Technology Management, using their “Enterprise Capital Fund” (independently managed, but in which BIS is the largest investor). The company was set up in a building owned and operated by STFC. — The business started to grow and look at new applications. As part of this it received support from SEEDA for an R&D project (Grant for Research & Development), and was able to claim R&D tax credit (a government scheme). It employed a technical member of staff using the “Knowledge Transfer Partnership” scheme (funded and operated by the TSB). It received a contract to develop security applications arising from the CONTEST strategy, supported by a number of UK government agencies. — To fund further expansion the company raised debt funding using the “Enterprise Finance Guarantee” scheme (which is a bank loan with a 75% guarantee from government). 10. Within the history of Cobalt to date there are at least nine different mechanisms that have involved a degree of public-sector support. The majority of this support has been applied in a “commercial” manner—for example the investments, rental of premises etc. The company now has a talented and experienced team of around 15 people, is producing, selling and shipping systems, and is considering the possibility of substantially increased volumes following successful international trials. The future of the company holds great potential, although the challenges of operating and growing such a technology company should not be underestimated. This great progress to date in growing a new and successful technology business is underpinned by the various support mechanisms that have been applied, and the company is a very good illustration of what can be achieved by applying these support mechanisms in a coherent and appropriate way.

Q5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 11. It is probably too early to determine what effect relatively recent initiatives such as LEPs and Enterprise Zones will have in this area, although it seems unlikely they would have substantial impact on commercialisation.

Q6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 12. Yes. If the UK wishes to take research commercialisation seriously then it must have vibrant venture capital and angel investor communities. The UK should be prepared to create one or two funds or vehicles whose intention is to make venture investments on the same terms as private venture capital ﬁrms and partner with third party investors. It should be funded with a sensible level of committed capital, staffed by cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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professionals from the investment industry and prepared to take the risks (make the losses) that such investing is bound to take. Tax breaks are clearly helpful and so are government-procurement contracts to “boot-strap” the revenues of start-up companies. 13. SIL appreciates that government is already making signiﬁcant efforts in this respect and that the topic is challenging, but more can and should be done. It is clear that private venture investment is not recognising or anticipating the true potential of attractive investment returns in these sectors and governmental encouragement to date has not reversed this trend. As such, the UK should explore more active options to incentivise private venture investment. This could be achieved via both (i) the tax environment to better support individual investors (building on schemes such as the Enterprise Investment Scheme) and (b) increasing public co-funding of venture investment to reduce the risk for private investors (for example through the Rainbow Seed Fund and the Enterprise Capital Fund approach).

Q7. What other types of investment or support should the Government develop? 14. SIL would like to see the government develop policy in the following areas: (a) Support Angel investment networks that include early-stage technology companies (such as those operated by Oxford Innovation). Such networks are difﬁcult to operate on a commercial basis, so government support could be used to encourage such networks. The networks can offer an effective mechanism for companies seeking investment to engage individual investors, and it is clear that such individual “angel investors” have an increasingly important role in supporting early-stage technology companies. (b) We believe there is a role for public procurement as a tool for innovation and growth. This is an area which has received some attention (eg House of Lords Select Committee “Public procurement as a tool to stimulate innovation”). It may be that for a small technology company a contract to develop and deliver a product may well be even more valuable than investment in that company. Such a contract will force the requirements on the company to develop and deliver what is required in a speciﬁed timescale. February 2012

Written evidence from the University of Oxford 1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 1. There are many challenges. These include: — Securing funding at each of the various stages along the continuum from initial concept to full commercialisation. — Establishing and maintaining long term relationships between commercial organisations and researchers/HEIs. — Nurturing and supporting talented entrepreneurial researchers and specialist commercialisation support staff. 2. It is difficult to access funding at each of the various stages and over the course of time required to bring research to commercial viability. We need, above all, funds to support research that generates creative ideas. Research funders need to back “high-risk” potentially high “pay off” proposals. In the UK this is the area where Research Council support is so important. Researchers also need access to funds to develop commercially prospective ideas to later stages of technology readiness. Research Councils can and do play a role here with impact funding and knowledge exchange schemes, as of course does the Technology Strategy Board. The major medical research charities, especially the Wellcome Trust and CRUK, also invest in and in other ways support commercialisation. 3. We need a high degree of continuity in funding programs and to avoid “initiative-itis”, that is creating new agencies and or schemes or rebranding others to meet political or organisational “fads.” 4. Governments must continue to invest in research commercialisation programs that have been shown to succeed—such as HEIF. 5. The UK’s taxation and investment-incentive systems need to be internationally competitive. 6. Long-term relationships between universities and business need to be encouraged. 7. Commercial investors need to be encouraged to recognise universities as active partners in developing intellectual property and not simply as passive suppliers of research ideas. 8. Innovative approaches are needed. The Oxford-Man Institute of Quantitative Finance, for example, brings together an interdisciplinary team of academic researchers and industry-leading practitioners in a research environment which increases the probability of producing significant ideas which have a chance of shaping the future. The Structural Genomics Consortium, with sites in Oxford and Toronto, sees commercial competitors cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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working together on research problems at pre-competitive stages of the commercialisation process, where industry might otherwise find collaboration difficult. 9. The UK needs to continue developing entrepreneurial skills amongst researchers, and fostering entrepreneurship among undergraduates and graduate students. We are delighted that Oxford Entrepreneurs launched in 2002 is not only the largest student society at Oxford University but also now the largest free business and entrepreneurship society in Europe with over 7,000 members. The network includes undergraduates, graduates, MBA students, active alumni, and external members. Isis Innovation, the University’s wholly-owned technology transfer company, is a major supporter of Oxford Entrepreneurs and contributes to other educational activities at the University. Its team of specialists in IP management, business creation and development, industry liaison, marketing and finance, works with University researchers on identifying, protecting and marketing technologies through licensing, spin-out company formation, consulting and material sales.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 10. Any operation that involves capital intensive manufacture is very difficult in the UK. This applies across all sectors, from microelectronics, to new forms of energy generation and storage, and advanced healthcare developments (especially point-of-care biosensors). Difficulties also exist for the biomedical sector particularly the drug discovery sector. Regulatory issues also slow down and enhance the financial risk in much of the renewable energy sector. 11. The NHS has a vital role to play in the national innovation eco-system, taking advantage of the UK strengths in science and engineering. The University has a new relationship with the NHS, through the Oxford University Hospitals NHS Trust, which will help to facilitate excellent patient care and “bench to bedside” translational research.133 Government investment in BRUs and BRCs has also been vital—here at Oxford the NIHR Musculoskeletal Biomedical Research Unit and the Oxford Biomedical Research Centre, a partnership between the University of Oxford and Oxford University Hospitals, funded by the National Institute for Health Research, also play key roles in driving research and innovation (incl. wherever appropriate through commercialisation).

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 12. There are many such examples. But this is unsurprising given the shape of the global economy. Research conducted in the UK is internationally renowned, and highly sought after. Ideas and people flow world-wide. The UK must do business with overseas companies. UK university research, in turn, draws knowledge, talented people and investment to the UK. Market forces, in the end, influence how and where ideas are commercialised. There is a view that more of the research in UK universities could be commercialised in the UK if key sectors of the economy were receptive to new ideas, if there was less of a short-term focus, if there was more absorptive capacity, if there was a more entrepreneurial culture, if firms in the UK invested more in R&D (in-house and with other sectors), and if there was more incentive for the UK arms of multinationals to drive innovation in the UK.134

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 13. A series of independent evaluations, published by HEFCE, BIS and others point to significant benefits from the Higher Education Innovation Fund (HEIF). At Oxford HEIF funding has expanded our capability and capacity to engage with business and embed this capacity throughout the University, and the results as reported for example through the annual Higher Education Business Community Interaction (HE-BCI) Survey are impressive.135 14. Government co-investment in 1999 in the University Challenge Seed Fund (USCF) was influential. The Oxford UCSF, for example, supported the creation of 31 spin-out companies and five licensing deals.136 The Kinetique Fund made many significant investments in spin-out companies from King’s College including Theragenetics, and OSspray Limited, and Neurotex from Queen Mary, University of London. Imperial Innovations, formed back in 1986, “only really began to accelerate in the late 1990s, when the British government began to back technology transfer with schemes like the University Challenge Seed Fund” (see Nature Materials, December 2011).137 15. The UK Research Councils have provided special funding for Knowledge Exchange and Impact activities, which has helped to facilitate researcher-end user interactions. 133 www.ox.ac.uk/media/news_stories/2011/111101_1.html 134 See, for example, www.theworkfoundation.com/DownloadPublication/Report/304_Making%20the%20UK%20a%20Global% 20Innovation%20Hub%20HR.pdf; and www.sciencedirect.com/science/article/pii/S0048733304001003 135 Oxford’s HEIF 5 allocation was driven by activity metrics which exceeded those of its nearest rival by 30%. 136 See www.isis-innovation.com/researchers/UCSF-1.html 137 www.nature.com/nmat/journal/v11/n1/full/nmat3208.html cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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16. Knowledge Transfer Networks contribute steady improvement in connecting businesses together, connecting companies with appropriate university groups and generally improve the transfer of know-how between the HE sector and business. Knowledge Transfer Partnerships also play a valuable role in this area. The Collaborative Research and Development (R&D) Program assists the industrial and research communities to work together on R&D projects. TSB competitions open to small and micro businesses in key technology areas can provide vital support to university spin-outs. It is too early to tell what the beneﬁts of the Catapult program, will be; it will be vital that the new Catapult Centres are closely linked to the research base within leading universities.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 17. The impact overall should be positive. 18. Impact needs to be judged over the medium to long-term. 19. It is imperative that the Government continues to supports a broad, high quality base in fundamental research to optimise the generation of ideas. 20. We would urge stability in strategies/programs and be wary of “initiative-itis” (see paragraph 3) 21. We have concerns about strategies that rely on predicting technology futures and “winners”—as Shpancer observed “[Humans] tend to be as conﬁdent about prediction as we are bad at it.”138 22. There are some other notes of caution, eg around strategies that over-emphasise so-called “applied research” or are politically-driven towards certain favoured areas or sites to the detriment of others. We hope that investment in the new Catapult centres will not divert funds away from already successful TSB programs; and policies around “Open Access” to research data must have due regard to the interests of research collaborators, investors and research commercialisation agents.139

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 23. Yes. Relationships between investors and universities are highly beneﬁcial both to universities and to the private sector, resulting in valuable exchange of learning and greater understanding between different research cultures. The role of informed angel investors, offering business expertise as well as investment capital is important. Tax incentives may provide one route to encourage investors. However, it must be recognised that private equity investment will not meet all the needs of the science and engineering sectors and that basic research which may lead to commercial opportunities will often require longer timelines than can be accommodated by private equity investment.

7. What other types of investment or support should the Government develop? 24. We would welcome a further investment in university seed funds/proof of concept funds (see paragraph 13), perhaps on a matching basis. Substantial funding is required.140 25. Government must ensure that the UK’s taxation system is internationally competitive to attract investment and promote collaborative R&D between universities and companies. 26. Government and local authorities should support Business Incubators. Research sponsored by NESTA indicates that incubated firms have a much lower failure rate than for new businesses generally and that that business incubation environments can be a good way to attract and retain highly-skilled workers that might otherwise leave the region, especially where the incubator is attached to a university or research centre and has access to suitable “grow-on space”.141 Recent American research indicates that companies based on university research are 108 times more likely to go public than an average start-up.142 An example of this pro-active incubator activity is the University’s Begbroke Science Park where a team funded from Oxford’s HEIF allocation ensures that the provision of facilities and training is available for spin-offs and early stage start-ups. 27. Government must recognise how important it is that UK universities be able to attract and retain the “brightest and best” staff and students. As Universities UK recently observed in commenting on Student Immigration proposals: The breadth and depth of UK universities’ international activities should be celebrated as a major success story and confirmation that the UK has a world-class university system. 138 www.psychologytoday.com/blog/insight-therapy/201102/our-murky-crystal-ball 139 See www.universitiesuk.ac.uk/PARLIAMENTARYACTIVITIES/UUKINPARLIAMENT/Pages/ default.aspx 140 Eg Deloitte’s analysis of the Wyvern UCSF suggested that whilst the annual Internal Rate of Return (IRR) was very good at 20% per annum, this would have been higher if more funds had been available and the investment cap had been greater than £250k. See http://wyvernfund.com/assets/files/101008%20Deloittes% 20research%20paper.pdf 141 www.nesta.org.uk/publications/policy/assets/features/business_incubation_in_challenging_times 142 http://stevens.usc.edu/read_release.php?press_id=111 cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Universities are international organisations and depend on international mobility of students and staff to deliver teaching, research and knowledge exchange of the highest quality. The knowledge economy is global and is based on the free movement of expertise, ideas and people. Restricting mobility will result in the UK losing its competitive edge as a country ... all areas including business, research and innovation will suffer.143 28. Oxford attracts excellent and innovative postgraduate research students (PGRs), including many international students. PGRs have been named in many invention disclosure and patent applications and we have many examples of successful student spin-outs and start-ups. PGRs are major drivers of research and innovation; the UK must continue to invest in order to attract local and international students with an enterprising mind and provide opportunities for them to create and enhance businesses in the UK. 29. In the Gareth Roberts Science Policy Lecture (October 2011), The Right Hon. David Willets, MP, Minister of State for Universities and Science, observed that “The research base is among our greatest national assets and vital for our future.”144 (This base he later observed “emphatically includes the arts, humanities and social sciences”).145 He remarked that all the evidence “points to the fact that the Coalition was right to protect the budget for science and research last October ....”146 We welcome the Science and Technology Committee’s Inquiry examining ways the UK can continue to support and enhance the generation of knowledge and the commercialisation of university research. February 2012

Written evidence submitted by the Smart Club for the East of England (SCEE) 1. The majority of our concerns are included and well articulated in the SMEIA Submission by Tim Crocker. 2. As a whole, over 95% of UK start ups fail within 3 years. We believe the success rate for technology firms however is much higher. Based on this why has there been no attempt by BIS or anyone else to find out what ingredient makes some firms survive. 3. Britain is the most inventive and innovative country on the planet. 4. Britain is the most hopeless country on the planet at getting products to market. 5. Reason? We concentrate far too much resource on the “inventing” end and ignore the “development” part. Because nobody works in “development” outside pharmaceuticals it doesn’t have a voice. 6. We have a large “business support system” which adds little. There are too many advisors with no first hand knowledge. 7. Shortage of capital means the “build up and sell out to the USA” model is the only business expansion route available in technology. A strong layer of long—term “family” firms on the German model would stabilise employment and substantially increase exports. 8. You cannot pick winning technologies. But you can pick winning people. Present approaches to supporting technology development are all wrong and wasting public money. The same schemes fail time and time again. 9. We need an industrial bank. We cannot increase the volume of products to market without. 10. Apprenticeship and technician training are finally being recognised as important. Good. This effort needs to be maintained. 11. That the country is in a substantial mess hardly needs saying but it is acknowledged that genuine attempts are being made across HMG to start identifying and talking to primary people rather than endless lobby and pressure groups and the range of self—and vested—interests as in days of old. 12. If there was in existence a “15 year plan for the development of the UK” how would the select committee see itself contributing to this? 13. In 2010 we ran a lecture (Professor Paul Kennedy, Yale University, author of “The rise and fall of the Great Powers”) entitled “Innovation and Industrial Regeneration” which to date has generated substantial worldwide interest with over 300 enquires. Not one—not one—of these has come from the UK. 14. There are reports from Civitas and ERA that we commend to the committee, details can be taken from www.scee.org.uk website links. February 2012

143 www.universitiesuk.ac.uk/Publications/Documents/UUKresponseToTheStudentImmigrationSystem.pdf 144 www.bis.gov.uk/news/speeches/david-willetts-gareth-roberts-science-policy-lecture-2011 145 “Our Hi Tech Future” speech 4 January 2012, Policy Exchange, London. 146 www.bis.gov.uk/news/speeches/david-willetts-gareth-roberts-science-policy-lecture-2011 cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Written evidence submitted by the Smart Club for the East of England (SCEE) Committee We are concerned that the current way the Technology Strategy Board (TSB) is administering Smart grants is actually hindering innovation in SMEs. 1. Our prime cause for concern is the length of time it is taking from submission of application to being able to start projects—We have yet to find anyone who has started in under 5.5 months, and a number for whom it has taken six months, including a Proof of Market grant which should be the fastest of all. 2. We believe this reflects the corporate business experience of those in the TSB who have big company backgrounds where six months is often quick for decisions whereas it is completely unacceptable for SMEs whose timelines are always much tighter. Co—funding offers are usually time—limited and six months is generally the maximum allowed. 3. As a result there is a possibility that less than half the £20million budgeted for support to SMEs in this financial year will be claimed indicating a major shortfall in the government’s support for innovation. (Smart has consistently been shown to be the most effective and efficient way of helping British companies innovate). 4. The success rate has steadily fallen from circa 40% to 10%, ie over 90% of applications are going though the assessment process only to be rejected, a considerable waste of resource. 5. The decision to have deadlines for applications “the only way we could control the budget” also puts strain on the TSB, the applicants, and the innovation support industry—peak demands for quotes from subcontractors, for helpers and advisors (the latter resulting in rushed applications). It also appears to have failed its declared objective, see paragraph 3. 6. Again this is wasteful and inefficient, however more importantly perhaps it prevents good practice being instilled into SMEs in terms of good project planning ranging from “have we properly defined the market opportunity and therefore know what the end point will be in terms of product or service”, to detailed planning, cost estimation, proper protection of IPR, better understanding of the challenges/risks etc. 7. Typical Timeline details: 0 weeks Deadline for applications using TSB “Large Company” form. 5 weeks Applicants advised by email if they have been successful. 8 weeks Unsuccessful applicants given “feedback”, most of which is taken directly from the TSB’s advisory notes and does not form constructive feedback—indeed is often complimentary. 10 weeks Applicants receive 41 page Conditional Offer—this requires more details on project plan, project cashflow, exploitation plan, and company finances/source of matched funding. 12 weeks Most of the companies we have been in contact with claim to have responded to this within two weeks. 14–16 weeks Project Mentor appointed—the time taken has varied from applicant to applicant, weeks their understanding appears to vary considerably as does the amount of dialogue back and forth also, hence it appears to be taking another 10 weeks or more to agree a start date and so for projects to commence. 24–26 weeks Project starts. A prime reason for this appears to be an arrogance in the TSB that they could abandon the best practice built up by the RDAs (who in turn had to learn after they ignored DTI best practice), and abandon a simple filtering form, going instead for a form that is designed for large businesses and falls between the previous filtering form and full application (thereby requiring further clarification after conditional approval). At each stage there is extra work and extra delay, costing money at a time when everyone else is having to make cuts.

Recommendations Short term 1. The TSB should adopt a screening process, accepting applications at any time, ask applicants who appear to meet the criteria to complete a more detailed application form so that if approved the projects can start quickly as there are few outstanding issues. 2. There be no deadlines for full applications and that the approval be done on a monthly basis which ought to spread the load and make it easier to budget. 3. The current allowance of £5,000 for protection of IPR generated during the course of a project should be at least doubled to enable applicants to protect their technology both in the UK and overseas through a PCT; the current ﬁgure only enables a single patent to be ﬁled in the UK. 4. The TSB, and other government organisations should stop second guessing the future, any project that meets the criteria (“risky” new technology, a project team with either the appropriate technical and management expertise or access to such, a clear understanding of the market opportunity and how to exploit it), should be supported irrespective of the technology. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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5. The plethora of grants etc. should be simpliﬁed.

Long term 1. The TSB should be re-absorbed into BIS so that those administering the schemes become fully accountable to elected politicians. 2. The existing “big business” board of Directors should be retained as an advisory body but complimented with a similar body of individuals with experience of technical innovation in SMEs. Prepared by Richard Moseley, Secretary of the SMART Club for the East of England on behalf of the committee. February 2012

Written evidence submitted by Cancer Research UK Executive Summary Cancer Research UK147 is the largest independent funder of cancer research in Europe. Over half of all cancer research in the UK is carried out by our doctors and scientists. Cancer Research UK’s research is entirely funded by the public. In 2010–11 we spent £332 million on research, supporting the work of more than 4,000 scientists, doctors and nurses. We fund research into all aspects of cancer from exploratory biology to clinical trials of novel and existing drugs, as well as epidemiological studies and prevention research. As the UK’s largest independent funder of cancer research, Cancer Research UK works with many partners including industry to leverage expertise and investment in order to deliver new therapeutics and understanding about existing therapies to patients. Our work with industry extends through joint working and several key programmes. Our scientists and doctors have contributed to most of the world’s top cancer drugs.148 Our full response to the inquiry into improving the commercialisation of research is detailed below, however in summary: — We urge the Government to develop a clearer vision for the Health Research Authority (HRA), outlining how it will fit in with the rest of the regulatory and governance landscape. — Further details of the measures that will be put in place to enable Clinical Commissioning Groups (CCGs), the Secretary of State for Health and the NHS Commissioning Board to uphold their duty to promote research are needed, to help position the NHS as world-leader in research. — We believe UK Governments should maintain the diversity of funding streams for biomedical research including funding to Research Councils, Funding Councils, and National Institute of Health Research funding. They should also continue to demonstrate long-term commitment to supportive funding (such as the charity support element of Quality Related funding) that enables charities to fund world class research in universities and the NHS. — We call on UK governments to lead on the development of a strong life sciences roadmap which pulls together the various commitments into one vision for UK science, and demonstrates commitment to nourish and grow the UK’s science base, to reassure researchers and investors of their long-term support. — UK Governments should better advertise opportunities for accessing EU funding, encouraging researchers to engage with all available funding mechanisms. — We welcome Government plans to consult on the use of patient data in carefully controlled research studies. Allowing patient data to be shared can be hugely beneficial to research. — We welcome the Government’s proposal to develop an early access scheme, and want to see this taken forward swiftly with sufficient engagement across the sector. — We believe the Government will need to monitor the impact of reforms to university funding to the uptake of STEM (science, technology, engineering, maths) courses to ensure that the supply of future researchers is not disrupted. — We call on the Government to ensure that immigration policy is supportive of UK science and enables recruitment of the brightest and best scientists from all over the world.

1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? Regulation In the UK, one of the most significant difficulties of conducting research are the barriers presented by our regulatory and governance framework. Evidence outlined in the recent Academy of Medical Sciences (AMS) 147 Registered charity no 1089464. 148 The “top” cancer drugs were defined using worldwide sales figures from 2005 (DataMonitor Data). Sales figures were from the US, UK, Japan, Italy, France, Germany and Spain. Examples of these drugs include temozolomide, anastrozole and herceptin. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Review149 outlined that the system in the UK is too complex, leading to the process for getting clinical research studies up and running being unacceptably slow.150 This presents a major cost to the commercialisation of medical research. (See Appendix, Case Study 1). Since publication of the AMS Review in early 2011 we have seen significant progress from Government in taking forward measures to streamline the regulatory environment. Cancer Research UK supports the Government’s response to recommendations from the medical research community to improve the UK’s regulatory and governance framework. These were set out in the Budget and associated Plan for Growth and included proposals to: — Set up a new health research authority (HRA) to streamline regulation and improve the cost effectiveness of clinical trials. — Make funding from National Institute for Health Research (NIHR) conditional on meeting a 70 day turnaround time for R&D permissions; from the time a Provider receives a valid research protocol to the time when that Provider recruits the first patient for that study. Cancer Research UK was pleased to see swift progress on establishing the Health Research Authority as a Special Health Authority, with it beginning to operate at the end of 2011. However it still remains unclear what other “regulatory organisations” will be joining the NRES (National Research Ethics Service) as part of the HRA. We are reassured that progress on developing a phased approach for the HRA to take on additional regulatory roles is ongoing, however we have yet to see clear plans and timelines outlined. We urge the Government to develop a clearer vision for the Health Research Authority (HRA), outlining how it will fit in with the rest of the regulatory and governance landscape.

NHS environment Another major difficulty of funding the commercialisation of research is the inability to capitalise on the potential the NHS offers.151 Cancer Research UK was pleased to see that this was an area addressed in the Government’s review “Innovation, Health and Wealth”, and we support the Government in its efforts to find a solution to this problem as changes could offer possible transformative benefits to the environment for medical research. The key points we believe will lead to the NHS being more supportive of innovation are: — The NHS Commissioning Board should set out a vision for research and innovation that outlines standards and targets for all levels of the NHS structure, and should then monitor to evaluate national progress. — Clinical Commissioning Groups (CCGs) should be supported to develop their own strategies for delivering their duty to promote research in innovation, and meet nationally set targets. — Secure mechanisms that ensure safeguards are in place should be further developed to open up data stored within patient records in the NHS. This data when used in ethically approved research studies and audit can be a major driving force for innovation in the health service. — There are significant opportunities for innovation through the introduction of stratified medicine that the NHS needs to take advantage of.

The Health and Social Care Bill provides an opportunity to ensure that innovation is promoted at all levels within the NHS. If we act now we could position the NHS as world-leader in research, and make signiﬁcant contributions not only to the health of the nation but also to the economy through savings and increased investment from industry. Further details of the measures that will be put in place to enable Clinical Commissioning Groups (CCGs), the Secretary of State for Health and the NHS Commissioning Board to uphold their duty to promote research are needed, to help position the NHS as world-leader in research.

Partnerships Despite difficulties, the UK science base has considerable strengths which offer solutions to the problems with commercialising research.152 Many of the researchers that are attracted to work in the UK choose to come here because of its outstanding reputation as a hub for cutting-edge research.153 Biomedical research, in particular, benefits from a unique combination of stakeholders. The combination of Government support, charity and industrial partners, and National Health Service, provides a breadth and 149 Academy of Medical Sciences (2011): A new pathway for the regulation and governance of medical research. 150 Cancer Research UK submission to Office for Life Sciences Review September 2011. 151 Cancer Research UK submission to Office for Life Sciences Review September 2011. 152 Cancer Research UK submission to Office for Life Sciences Review September 2011. 153 Martina Garau, Arik Mordoh, Jon Sussex, Exploring the Interdependency between Public and Charitable Medical Research (April, 2011). cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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diversity that is crucial to tackle many of the health-related issues currently faced as well as those that will arise in the future.154 Each funding body, as a result of their specific priorities and motivations, will cover different aspects of research funding, and will contribute to particular stages in project development. For example, while Funding Councils provide core infrastructure support for higher education institutions, charity grants for university researchers cover the direct costs of research, but not the indirect costs, such as heating and rent for the laboratory.155 In a report, commissioned by Cancer Research UK, the Office for Health Economics found substantive benefits, both financial and qualitative, from the existence of a diversity of funders for UK medical research.156 These include: — Sharing costs and pooling risks for research programmes. This enables high cost studies that might not otherwise be funded, and permits each funder to diversify risk across a wider portfolio of projects. — Providing a stable flow of financial support for medical research in the long term. — Building an environment more conducive to research in the UK, by drawing on the differing skills and know-how of funders and through the complementarity of research funding across this diverse group of funders. — Creating a competitive research environment that has the potential to increase research quality. Whilst our research is entirely funded by the public, the work of Cancer Research UK is highly dependent on investment from a range of government agencies. Industry, charities and the Government have different but complementary roles as research funders. The synergistic nature of these relationships, and how they link with the unique resource provided by the NHS, is a vital asset to the commercialisation of UK biomedical research.

Government funding and vision Government funding is instrumental for overcoming the difficulties in funding the commercialisation of research. It provides a framework in which all other funders can operate, both by funding specific institutions and through policies and regulations that shape the funding environment for other investors. We believe UK Governments should maintain the diversity of funding streams for biomedical research including funding to Research Councils, Funding Councils, and National Institute of Health Research funding. They should also continue to demonstrate long-term commitment to supportive funding (such as the charity support element of Quality Related funding) that enables charities to fund world class research in universities and the NHS.157 We call on UK governments to lead on the development of a strong life sciences roadmap which pulls together the various commitments into one vision for UK science, and demonstrates commitment to nourish and grow the UK’s science base, to reassure researchers and investors of their long-term support. The Innovation and Research strategy did go some way towards developing a long term vision. However a disadvantage of the strategy was that it did not provide any information beyond 2015. While we understand that Governments are constrained by five year terms in office; the nature of biomedical research, with an average of 17 years between basic research and patient benefit, means that Governments need to establish a long-term vision by laying out the fundamental principles for the research environment in the UK.

International Funding Increasingly researchers in the UK are looking to other countries for funding to overcome the translational gap, or so called “valley of death”, and are winning support from the private, public and charity sectors. UK research groups have beneﬁtted from EU funding through the Framework Programmes and from the Innovative Medicines Initiative (IMI), Europe’s largest public-private initiative. While many UK researchers have successfully negotiated these European funding mechanisms, several have been deterred by the complicated application process. UK Governments should better advertise opportunities for accessing EU funding, encouraging researchers to engage with all available funding mechanisms.158 There are Contract Research Organisations (CRO) who will take on a “no win no fee” role in helping scientists with applications for EU funding grants. Cancer Research UK believes that there is an opportunity for the Government to explore the potential of these ﬁrms to help researchers maximise their engagement with international funding opportunities. 154 The Academy of Medical Sciences raised many of these issues in its submission to the Spending Review, http://www.acmedsci.ac.uk/p48prid83.html 155 Cancer Research UK, 2011. Building the Ideal Environment for Medical Research. 156 Martina Garau, Arik Mordoh, Jon Sussex, Exploring the Interdependency between Public and Charitable Medical Research (April, 2011). 157 Cancer Research UK, 2011. Building the Ideal Environment for Medical Research. 158 Cancer Research UK, 2011. Building the Ideal Environment for Medical Research. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors?

Rare cancers

Kidney cancer is a rare disease, and an example of a specific science sector where is particularly difficult to commercialise research. Only a few thousand people are diagnosed with kidney cancer every year, and only one in 10 people diagnosed surviving beyond five years of diagnosis.159 In 2008 the only available treatment option was immunotherapy; if patients were not suitable for immunotherapy, or if it did not work, there were no other options.

Subnitnib, a new generation kidney cancer treatment was approved by NICE in 2009. While this drug was being developed, it took a relatively long time to run large enough trials to gather sufﬁcient evidence for it to be approved because of the low numbers involved.

As we have already commented, if we make real progress on streamlining the regulatory environment for clinical trials in the UK, combined with advance in taking a stratiﬁed approach to medicine, should enable us to get trials to these rarer patient populations quicker.

Early Access

It takes around 17 years to get a drug from the early stages of development to patients. We believe that once we know that drugs are safe , under strict supervision and initially for conditions where there are no other treatment options, we should explore options that would bring drugs to patients earlier in the drug development process, in the hope that patients can reap the beneﬁts of promising new drugs sooner.160

The reason that this is so important is that many cancer patients ﬁnd themselves in the devastating position of having no treatment options available to them—even though there are new drugs in the development pipeline from which they might beneﬁt.

This measure will help to bridge the “valley of death”, as it should create strong incentives for companies to develop drugs for smaller groups of patients, with the potential for an earlier return on their investment. This in turn, has the potential to encourage pharmaceutical companies to invest in the UK. We welcome the Government’s proposal to develop an early access scheme, and want to see this taken forward swiftly with sufﬁcient engagement across the sector.

Medical Physics

Research into medical physics is a very different process to biomedical research. Feedback from the medical physics community of Cancer Research UK researchers strongly indicates that the barriers to commercialisation for medical physics are not widely acknowledged and therefore there has been less progress in this area than there has been for biomedical research in recent years (see Case Study 2). Cancer Research UK believes more needs to be done to understand the distinct pathway to commercialisation for medical physics and medical technology and to help us identify the speciﬁc difﬁculties in the commercialisation of this research area.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

Stratiﬁed medicine

Cancer Research UK is working with AstraZeneca, Pﬁzer and the Government on an exciting Stratiﬁed Medicine programme which will allow the NHS to adopt new targeted therapies and make the UK a better place for research into more personalised cancer treatment.

Stratified medicine has the potential to benefit patients, the NHS, the UK economy, research and academia. Patients will get more effective treatments, with fewer side effects. The NHS will improve prescription cost- effectiveness, and the UK economy will benefit from attracting investment from the life sciences industry, improving the commercialisation of medical research.

The revenues from stratified cancer medicines could be higher than those generated through the traditional business model. Superior clinical performance should lead to rapid and wide adoption of stratified medicine; effective patent life should be longer because development times are shorter, and peripheral benefits, such as cheaper marketing costs and revenue from associated diagnostics and biomarker tests, will all serve to enhance profitability. Patient stratification would be a competitive advantage for companies seeking market access. 159 Sarah Woolnough, Bringing Science to Life, The New Statesman, January 2012, p 12–14. 160 Sarah Woolnough, Bringing Science to Life, The New Statesman, January 2012, p12–14. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? Patient data “opt out” Government Strategy for Life Sciences plans to consult on changes to NHS constitution to allow for an “opt out” of use of patient data in research. At Cancer Research UK we depend on patient data enormously for our lifesaving research. Analysing patients’ records has helped us understand the causes of cancer, including how to prevent the disease and to diagnose it at an earlier stage when treatment is most likely to be successful. We therefore welcome Government plans to consult on the use of patient data in carefully controlled research studies. Allowing patient data to be shared can be hugely beneﬁcial to research but the process must be subject to strict safeguards. It is very important that the Government gains public support for the plan, if it is to simplify the regulatory environment for the beneﬁt of patients and researchers.

7. What other types of investment or support should the Government develop? Charity Research Support Fund Charities chose to fund research in universities because of the world-class research environments they provide. The dual support system for university research is a key factor underpinning this excellence. The Quality Research (QR) block grant from the Higher Education Funding Council for England (HEFCE) builds strong autonomous universities by giving them the stability, ﬂexibility and freedom to make strategic decisions about their own research activities. The charity research support element (known as the Charity Research Support Fund) is a vital part of QR as it enables Government funding to leverage additional partnership funding from the charity sector.161 Universities and charities need to be able to plan their future funding and research strategies with the secure knowledge that the dual support system, and the important charity support element within it, will continue. A “stop-start” approach could lead to the attrition of the research base, and could disproportionately affect progress in medical research in universities, where the majority of charitable funding is focused. Cancer Research UK calls on the government to reafﬁrm its commitment to ongoing partnership funding to ensure the stability of charity- funded research in universities in England.

Francis Crick Institute The Francis Crick Institute will be Europe’s largest biomedical research facility. Cancer Research UK is a key partner, along with the Medical Research Council (MRC), University College London, the Wellcome Trust, Kings College, and Imperial College.162 We are delighted that the Government has conﬁrmed investment for the Francis Crick Institute163 which represents a unique partnership between six of the UK’s most successful scientiﬁc institutions. It will champion an approach in which teams working in different disciplines collaborate to uncover fundamental biological mechanisms relevant to human health. Groups spanning the biological, clinical and physical sciences will share insight and techniques to capture a more complete understanding of life’s processes. Bringing specialists together to work on the greatest health challenges will increase the pace of discovery. The commercialisation of research is one of the core principles of the institute. Technology transfer will be a fully integrated activity with equal prestige to discovery research. Researchers will work closely with the existing technology transfer bodies of the founding partners and the Institute will also have its own technology transfer staff.

Investment in People Excellent people are the foundation for excellent science. Medical Research relies on scientists involved in basic, translational and clinical research.164 The future of UK research depends upon a continued supply of high quality researchers. The two central elements to this are the need to attract students into science, and, once trained, to support their on going development and encourage them to remain in science. Proposals for tuition fees to be the major source of university income could mean that institutions might consider compromising their preferred course content to attract students and this could be detrimental to the quality of UK science and scientists. We believe the Government will need to monitor the impact of reforms to university funding to the uptake of STEM (science, technology, engineering, maths) courses to ensure that the supply of future researchers is not disrupted. 161 Government support for charity funded research in universities: A joint statement from universities and charities in the UK. 162 www.crick.ac.uk/ 163 Sarah Woolnough, Bringing Science to Life, The New Statesman, January 2012, p 1214. 164 Cancer Research UK, 2011. Building the Ideal Environment for Medical Research. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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The UK research base depends not only on the contribution of British scientists, but also on the contribution of researchers from other countries, including those from outside the EU. The Government needs to be mindful that its immigration policy is supportive of UK science and enables recruitment of the brightest and best scientists from all over the world. Cancer Research UK calls on the Government to ensure that immigration policy is supportive of UK science and enables recruitment of the brightest and best scientists from all over the world. February 2012

APPENDIX Case Study 1 Closure of CR-UK funded bladder cancer trial due to regulation and governance The SPARE trial, launched in 2007, was a multi-centre feasibility pilot study, involving muscle invasive bladder cancer (MIBC) patients. Unfortunately, recruitment rates were not sufficient for the trial to progress to a phase III study, which would have determined standard of care in MIBC patients, and it was closed in January 2010. This is a huge disappointment to the UK and international urological oncology community, especially as the President of the British Association of Urological Surgeons had endorsed the study as one of the most important clinical questions facing UK urology. One of the major factors identified as a reason why recruitment to the SPARE trial did not reach anticipated levels was challenging bureaucracy. The time taken from a centre expressing interest in the trial to being ready to recruit patients was excessively long: 36 centres opened to recruitment during SPARE set-up and the average time taken from gaining first approval of the Site Specific Information Form to opening was 8.6 months (range 1.6–18.1 months). Most of the delay involved Trust R&D departments, with them often taking a long time to authorise the standard clinical trial agreement between the Trust and trial sponsor. This was exacerbated by the need to ensure that all Principal Investigators had adequate Good Clinical Practice training.

Case Study 2 Commercialisation of medical technology In the last 45 years, only two medical technologies have been successfully commercialised in the UK. Osiris, an application for generating body contours from laser lines on a patient, was developed by Robin Wilkes and commercialised after he retired from the NHS; and Roy Bentley’s pioneering treatment planning system which was developed in the 1970s. Over the same time period, a department of the University of Wisconsin (UW) has researched, developed and commercialised solid water; Thermoluminescence Dosimetry (TLD); Pinnacle, the world’s leading planning system; Tomotherapy, the world’s leading arc therapy treatment machine; and the compact charged particle accelerator. Rock Mackie, UW Professor of medical physics, human oncology and nuclear engineering and the most commercially successful medical physicist in the world, is currently heading a UW department speciﬁcally focused on the commercialisation of intellectual property (IP). The feedback from the Cancer Research community of medical physicists suggests that this success is due to the fact that all discoveries are IP protected and patented to individual researchers and inventors. Proceeds from the successful commercialisation of technologies are therefore passed onto individuals. This creates a culture of extensive IP cover and investment into research as individuals perceive they can beneﬁt from the commercialisation process.

Written evidence submitted by the Agricultural Biotechnology Council (abc) The views expressed in this submission are those of abc—the umbrella organisation for the agricultural biotechnology industry in the UK. abc, comprising of six member companies, works with the food chain and research community to invest in a broad range of crop technologies—including conventional and advanced breeding techniques, such as GM. These are designed to promote the sustainable intensiﬁcation of agriculture by tackling challenges such as pests, diseases and changing climatic conditions, whilst reducing water usage, greenhouse gas emissions and other inputs. The companies are BASF, Bayer, Dow, Monsanto, Pioneer (DuPont) and Syngenta.

Executive Summary 1. The UK has a strong pedigree in agricultural research and the capacity to ﬁnd solutions to the pressing food production challenges facing both the developed and the developing world. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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2. Europe is being left behind by other economic powerhouses across the world when it comes to the commercialisation of new and innovative agricultural technologies, including GM and other advanced seed technologies. 3. abc believes that significant barriers exist to the commercialisation of agricultural research in the UK which could be alleviated through stronger governmental and policy maker support. 4. Many scientists and professionals from the EU find better employment in more technology-friendly environments in other parts of the world due to the difficulties in the commercialisation of certain agricultural technologies. Although research in this area started in Europe, the lack of opportunity for research and practical applications means that intellectual capital is increasingly at risk. 5. Attracting investment into the agricultural sector requires confidence and positive signals from Government. abc believes that the UK Government should speak out on the challenges set out in the Foresight Report across all departments, and offer public support to the role of agricultural technology research and innovation in increasing agricultural production in a sustainable way. 6. Agricultural biotechnology should be incorporated into economic planning policy, and included alongside medical and industrial biotechnology in future bio-economy strategy documents.

7. Introduction 7.1 The role of agricultural biotechnology 7.1.1 Scientists around the world, including in the UK, are developing agronomic systems and technologies that combat pests and disease, allowing crops to respond to a changing climate and ensuring that fewer inputs are needed to preserve resources whilst increasing agricultural productivity. 7.1.2 A range of integrated agricultural innovations, including biotechnology, are required to meet the global challenge of food security. UK political backing is required to enable new technologies to deliver signiﬁcant economic beneﬁts and new breakthroughs for farmers.

7.2. The agricultural biotechnology chain from research to commercialisation 7.2.1 The development of agricultural technology from basic research through to the cultivation of new crops involves a number of stages. Similar to other R&D chains, this process involves: — initial laboratory research to develop new crop traits (eg disease-resistance); — further applied research to test the trait’s commercial viability, including ﬁeld trials (ie successfully growing a crop with the disease-resistant trait outside of the lab); — submission for technical assessment and approval for cultivation by regulating authorities, including crop co-existence (ie food safety, how close it can be grown to other crops etc); and — commercial seed sale and cultivation of the crop. 7.2.2 There is a further stage of utilisation when the crops enter the food and feed chain, for example as feed for cattle.

7.3. Strengths and weaknesses in the UK chain 7.3.1 There are at least twenty universities and institutes in the UK engaged in pure and/or applied research in agricultural biotechnology. 7.3.2 The UK has a particular strength at the early discovery stage of R&D, a vital stage of the agricultural technology development cycle. Investment from public sources in UK (such as the BBSRC which spends around £470 million on biotechnology and biological sciences), is relatively high compared to the EU.165 7.3.3 The UK has successfully developed clusters of research expertise with biotech firms found in Oxford, Cambridge and Dundee, many of which are spin-offs from university research departments. This reflects the success that has been achieved in other sectors, such as healthcare technologies, where the UK has achieved significant SME growth and has attracted investment from leading multinationals on the back of its scientific reputation. 7.3.4 Biotech multinationals and research institutes in the US, Brazil and China, are benefitting from the UK’s intellectual investment. Due to the imposed limitations of the agricultural technology industry in the UK (see 1.4), many of our brightest graduates from highly respected universities, and those working in specialist research institutes, perceive their futures as being better served outside of the country. 7.3.5 Research from the Rothamsted Institute found that the UK is losing its expertise in applied sciences, with those employed in applied R&D work increasingly getting older and fewer in number. There have been three significant closures of public research institutes associated with agriculture in the past decade. The 165 www.bbsrc.ac.uk/organisation/spending/spending-index.aspx cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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closures of Long Ashton Research Station in 2003, Silsoe Research Institute in 2006 and the Hannah Research Institute in 2007, have all contributed to a decline in our public agricultural research base.

7.4. Why are there weaknesses? Key issues addressed in abc’s submission 7.4.1 In the EU, decision-making on the import and cultivation of biotech crops is regulated at a European level. 7.4.2 Developers of biotech crops, such as abc’s members, submit biotech crop applications to the European Food Standards Agency (EFSA), which then makes a science-based, independent recommendation for approval or rejection to the European Commission. 7.4.3 However, the process for approving GM traits for cultivation by EU farmers has been beset by delays and political interference over the past 14 years. Only two products from over 25 waiting for assessment have been approved for cultivation in the European Union throughout this time, despite a state-of-the-art rigorous safety process.166 7.4.4 Innovators, and those who bring innovations to the market, rely on a political and regulatory environment in which innovation is fostered and promoted, and where science is at the heart of decision- making. This unpredictable regulatory regime limits the sector’s potential in the UK by limiting its appeal to private investors. 7.4.5 This creates a significant barrier to universities and publicly funded research institutes wishing to find private funding to eg launch spin-out SMEs to commercialise their innovations. 7.4.6 Despite significant attempts to improve matters, including the formation of Knowledge Transfer Networks and Technology Strategy Boards, the Government has been reticent to talk up the sector. This sends a confused message to would-be investors and acts as a disincentive to progress in this area.

8. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 8.1 Europe is being left behind by economic powerhouses across the world when it comes to investment in agricultural technologies, including GM and other advanced seed technologies. 8.2 Public spending on agronomic research in the UK is around £400m per year—with the Coalition Government committed to maintaining this in cash terms until the end of the current Parliament (May 2015). This supports a viable and vibrant research base, yet the UK is missing out on the potential benefits of commercialising some innovations due to EU-level reluctance to pursue science-based decision making. 8.3 A co-ordinated approach by governments from across Europe, public research institutes, and the private sector is required to realise the economic value from R&D in the sector. This will ensure that Europe, and specifically the UK, benefits from its growth potential in a similar way to the gains that have been made in healthcare biotechnologies and other science based sectors.

9. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 9.1 For the abc response to the first part of this question, please see point 2 (above). 9.2 abc’s submission relates specifically to the agricultural technology sector, and other organisations may be better placed to judge how this compares with other sectors. 9.3 However, it has been suggested that approvals processes in the pharmaceutical and industrial biotechnology sectors demonstrate how functioning, science-based policy and regulation can enable research to meet its economic and growth potential.

10. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 10.1 The transfer overseas of UK-based research discoveries in agricultural biotechnology for commercialisation is not, in itself, a negative process. With adequate safeguards in place for the protection of intellectual property, UK agricultural research institutes can still benefit from the royalties received from the commercialised product. 10.1.1 Some of the innovations which they are researching, eg bananas, may also not be appropriate for cultivation in the UK, and therefore transfer outside the UK for final development and commercialisation may be more appropriate. 10.2 EU regulations on the cultivation of GM crops have directly impacted on the research and development of agricultural biotechnology innovations in the UK, and have acted as a disincentive for companies to develop crops optimised for European use: 166 Approvals of GMOs in the European Union, EuropaBio, October 2011, www.europabio.org/sites/default/files/position/approval_of_gmos_in_the_european_union.pdf cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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10.2.1 Field trials of GM crops are allowable in the UK, in accordance with strict regulation, and approval for such trials for research and development purposes are considered at national level by Defra (for proposed releases in England, or by the relevant authorities in Wales, Scotland or Northern Ireland).167 10.2.2 However, the process for approving GM traits for cultivation by EU farmers has been beset by delays and political interference over the past 14 years. Only two products from over 25 waiting for assessment have been approved for cultivation in the European Union throughout this time, despite a rigorous safety process. 10.2.3 Many other products have waited for years for approval or otherwise due to political interference in what should be a science based assessment process. This effective ban on cultivation of GM crops may also act as a disincentive to field trials. Put simply, investors may not wish to invest millions of pounds in the commercialisation of a trait in the UK if there is no hope of also growing it in the UK. If the crop is only allowed to be grown outside the EU, eg in Brazil or the US, it can make more sense to commercialize the crop in that country, tailoring its development to local climatic and topographic conditions. 10.2.4 It would subsequently make financial and logistical sense to process the finished crops in that country, manufacturing products which can then be sold back into the EU. The licensing of UK innovations and IP to international partners for development and commercialisation can generate revenue for UK research institutes. However, the obvious drawback of commercialisation outside of the UK is the significant knock-on impact on the competitiveness of UK agriculture; with UK farmers unable to access innovative traits which may have first been developed here. 10.3. Some recent examples of this include: 10.3.1 Partnerships and research links between Rothamsted Research and the agri-business and research arm of the Brazilian Government, Embrapa.168 This is a fantastic example of the UK’s world-leading knowledge base in plant genomics and agricultural biotechnology, and of international collaboration to tackle the challenges raised in the Foresight Report. But it also highlights the value which Brazil places on research into wheat disease, with a regulatory regime under which GM solutions are much more likely to receive science-based assessment and approval. 10.3.2 The commercialisation of GM technology from the John Innes Centre in Norfolk which enhances the root systems of plants.169 The technology was developed by Dr Liam Dolan and his colleagues at the John Innes Centre in Norwich. The team cloned and characterised genes which may play vital roles in anchorage, water use and nutrient uptake in plants. The technology has already been shown to be effective in enhancing root systems in transgenic plants of major crops around the world. Dow AgroSciences has now licensed the technology for commercialisation from the JIC via PBL, a company which develops innovative technologies from public and private sources worldwide and turns ideas into patented, scientifically validated and licensable technologies. Dow AgroSciences now hope to develop and commercialise the trait in different crops, enhancing their ability to survive stress, increase nutrient utilisation, and provide yield stability in challenging years or in parts of the world where there are less than favourable growing conditions.

11. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 11.1 abc does not have the evidence to be able to reliably answer this question directly, but the member companies are involved in the TSB and other initiatives, and therefore can provide further evidence individually if required.

12. What impact will the Government’s innovation, research and growth strategies have on bridging the “valley of death”? 12.1 If the Government continues to avoid addressing the issues facing agricultural biotechnology, the answer must be “not very much impact”. 167 www.defra.gov.uk/environment/quality/gm/ 168 www.rothamsted.ac.uk/PressReleases.php?PRID=94 169 http://www.pbltechnology.com/documents/News%20Documents/DAS%20PBL%20News%20Release% 2000.244%2002.11.10%20.pdf cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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12.2 The failure of the Government to include agricultural biotechnology alongside medical and industrial biotechnology in the recent Ofﬁce for Life Sciences Life Sciences Strategy document highlights this problem.170 12.3 The UK is currently a world leader in agricultural research, renowned for its science base and unrivalled farming knowledge, which together help develop and apply new technologies in innovative ways. The UK has a particular strength at the early discovery stage of R&D, a vital stage of the agricultural technology development cycle. 12.4 Public policy in the UK is also increasingly recognising the need to capture the beneﬁts inherent in the development of agricultural technology, as demonstrated by the Foresight Report.171 12.5. Investment from public sources in UK (such as the BBSRC which spends around £470 million on biotechnology and biological sciences), is relatively high compared to the EU. But the wider EU regulatory environment creates a chilling effect on greater private sector investment in the sector, particularly in commercialising innovations (see point 4). 12.6 However, abc believes that the UK Government could act to reverse this trend through stronger governmental and policy maker support and continued UK leadership on agricultural technology in Europe. This would send a positive message and encourage further private sector investment in agricultural biotechnology. For further details, please see point 7.

13. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 13.1 The agricultural technology sector already attracts significant levels of investment around the world from private equity investors (including venture capitalists) and from R&D investment by existing companies. This investment is driven by a global biotech seed market worth $10.6 billion in 2009.172 13.1.1 The average cost of achieving approval for a GMO in Europe has been estimated at €7–10 million per event. These costs mainly accrue from the large number of studies which the applicant companies have to present to EFSA. The financial investment required to develop a crop from innovation to the point of submission to EFRA can be much higher.173 This often puts commercialisation beyond the budget of public research institutes; hence partnerships and investment from the private sector are crucial. 13.2 However, investment in the development of agricultural technologies by the private sector is dependent upon industry confidence in the stability of, and returns offered by, the market. The current inconsistent operation of a science-based approvals process in the EU for agricultural biotechnology does not incentivise the private sector to invest in commercialisation of traits in the UK over other countries, as illustrated in point 5. 13.3 To improve this situation, the UK Government needs to start taking the technology seriously and devoting the same energy to promoting it as is currently given to the other biosciences. The Government’s recent public recognition of the potential of agricultural biotechnology is welcome, and it should now: 13.3.1 Continue to press the European Commission to ensure that the system for approvals is properly implemented and based on scientific assessment 13.3.2 Speak out on the challenges set out in the Foresight Report across government, and offer public support to the role of agricultural technology research and innovation in increasing agricultural production in a sustainable way. Particularly via the inclusion of agricultural biotechnology alongside medical and industrial biotechnology in future bio-economy strategy documents. 13.3.3 Design a public policy framework that favours the development of new technologies, including biotechnologies, in cooperation with EU partners and other countries. 13.3.4 Support Intellectual Property rights to encourage and protect innovation.

14. What other types of investment or support should the Government develop? 14.1 Recent public statements by Ministers in Defra on the potential of agricultural biotechnology have been extremely welcome, and contribute to one of the key conditions on which growth and investment in the sector is dependent—industry confidence in a science-based and stable regulatory environment (as highlighted in point 8). 14.2. There are a number of tangible actions which would further bolster this confidence, and allow industry to start planning for further growth and investment in the UK: 170 www.bis.gov.uk/assets/biscore/innovation/docs/s/11–1429-strategy-for-uk-life-sciences.pdf 171 www.bis.gov.uk/foresight/our-work/projects/published-projects/global-food-and-farming-futures 172 Pocket guideto GM crops and policies, EuropaBio, 2001 www.europabio.org/sites/default/files/position/pocket_guide_gmcrops_policy.pdf 173 GM crops: Reaping the benefits, but not in Europe—Socio-economic impacts of agricultural biotechnology www.europabio.org/ agricultural/positions/gm-crops-reaping-benefits-not-europe-socio- economic-impacts-agricultural-0 cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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14.2.1 BIS and HM Treasury should incorporate agricultural technology, including biotechnology, into its economic policy planning. In particular, abc would like to see the potential of agricultural biotechnology recognised alongside medical and industrial biotechnology in BIS’s future strategies for UK Life Sciences. 14.2.2 Defra should broaden the remit of current working groups on Foresight to encompass the economic beneﬁts of agricultural technology to the wider economy, as well as increasing agricultural production in a sustainable way. 14.2.3 The UK Government should ensure a continuation and expansion of funding for crop research by public sector and academic institutions. 14.2.4 Continued UK Government support for Intellectual Property rights to safeguard revenues generated from commercialisation overseas of innovations developed in the UK. February 2012

Written evidence submitted by the Institute of Physics The Institute of Physics is a leading scientific society promoting physics and bringing physicists together for the benefit of all. It has a worldwide membership of around 40,000 comprising physicists from all sectors, as well as those with an interest in physics. It works to advance physics research, application and education; and engages with policy makers and the public to develop awareness and understanding of physics. Its publishing company, IOP Publishing, is a world leader in professional scientific communications. This submission was prepared in consultation with the Institute’s Science and Business and Innovation Boards, with input from members of the Institute with direct experience of the issues raised. The Institute welcomes the opportunity to respond to the Science and Technology Committee inquiry “Bridging the ‘valley of death’: improving the commercialisation of research”. If you need any further information on the points raised, please do not hesitate to contact us.

What are the difficulties of funding the commercialisation of research, and how can they be overcome? 1. Improving the effectiveness of the commercialisation of research is one of the major challenges in “rebalancing” the UK economy. The products of physics research are at the heart of sectors ranging from high- technology manufacturing to financial services, and for these industries to grow, they will need access to the next generation of physics knowledge. Improving access to funding is an essential aspect of promoting this commercialisation, but it will not on its own improve the performance of the UK. To increase the success of the commercialisation of research in the UK, there must be an environment that supports excellent research, the development of high-level skills, and a business landscape that is both capable of providing investment and able to turn ideas into profits. 2. There is a perception that the UK has a poor record in the commercialisation of science. In contrast to the strength of its academic research base, seen to be the second strongest in the world, the UK is comparatively low-ranked in terms of business investment in research and development as a proportion of GDP. While such metrics cannot be said to be perfect measures of the strength of commercialisation of research, or of the strength of innovative businesses,174 they are measures that can easily be compared internationally and it is clear that the UK has not made significant progress toward its “Lisbon” target of increasing gross R&D spending to 2.5% of GDP.175 3. To strengthen the UK’s position, there needs to be a concerted cross-government strategy and a long-term framework, spanning many policy areas and several government departments. At the core of this must be a strong research base that encompasses both pure and applied research areas. It should not be thought that simply reducing investment in blue-skies research and increasing investment in more applied programmes will have a wholly beneficial effect, indeed there is some evidence suggesting that pure research has a greater ultimate economic value than more applied research fields.176 4. There must also be companies that are capable of working with the products of research and either developing them in-house, or building on them to produce innovative solutions. These companies are essential. Without the capacity to absorb the ideas and inventions from research, the options for commercialisation of such research are severely limited. Integral to the success of such companies is the presence of skilled workers, trained in areas such as physics, who are able to adapt to novel techniques and technologies. There has been a significant decline in the availability of investment funds for science-based companies in the UK over recent years, both in terms of early-stage venture capital and also later stage investment in companies aiming to undertake R&D.177 While it has been a stated aim of the government to increase the levels of lending by banks 174 An area where there should perhaps be more work is in identifying a more appropriate metric for knowledge exchange and commercialisation. 175 http://ec.europa.eu/invest-in-research/pdf/download_en/kina24050enn.pdf 176 www.russellgroup.ac.uk/uploads/RG_ImpactOfResearch2.pdf 177 www.nesta.org.uk/library/documents/Venture_Capital.pdf cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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to smaller businesses, this is an area where the government could do more through providing direct support for innovative businesses with leveraged investment funds and also through targeted public procurement programmes (see paragraph 16). 5. Finally, there must be effective intermediaries to link research with the steps to commercialisation. These include, but are not limited to, the work done by agencies such as the research councils and the Technology Strategy Board (TSB), and also many effective networks and programmes in science parks and other private sector enterprises. This category should also include accountants, lawyers and other professionals; areas that are sometimes neglected in analyses, but are essential for effective linkages between researchers, businesses and investors.

Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 6. R&D can be a long-term project. Often years will elapse between the original discovery or innovation and a first sale, and further time still before the company turns a profit. These long timescales mean that for science-based companies to survive and succeed, they need access to the right investment and support at the right time. 7. Even with appropriate investment, within the physical sciences in particular, there is the further barrier that technologies and innovations tend not to reach the market as stand-alone products, but are instead incorporated into other products or devices eg a novel electric component in a mobile phone handset. In the same way, there is often not a single precise application, benefit or market trajectory for a new idea in the physical sciences, meaning that the innovative component must find its way through several companies, and several R&D cycles, before it can be seen to be profitable. 8. As such, for physics-based innovations to be commercialised in the UK, there must be a chain of companies producing technologies or devices into which new innovations can be incorporated. This is an area which is often neglected in the drive to create a high-technology industry in the UK, where there can be an unhealthy emphasis placed on the role of university spin-out companies. A critical mass of innovative small and large companies, and supply chains, is an essential part of any commercialisation landscape.

What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur 9. There will and should be a natural flow of ideas and knowledge across national boundaries—science is an international endeavour. The strength of the UK research base and the presence of leading companies means that it is able to take advantage of discoveries and innovations made in other countries, and, equally, there will be ideas and discoveries made in the UK that have been developed in other countries. 10. In recent years there have been some notable exports, such as the results of research undertaken at Cambridge, and other UK centres, in the field of plastic electronics and displays. It is also likely that some discoveries resulting from research in graphene will also be developed and commercialised in South Korea and Japan. However, there has also been significant UK-based R&D in these areas, with many companies exploiting the potential of these discoveries based in the UK. 11. The reasons that individual research-intensive companies, or companies looking to exploit home-grown research, move abroad or sell on to larger companies will likely be complex and unique to the situations of the companies involved. However, it is usual for R&D centres, and, to a lesser extent, manufacturing centres, to be close to large markets, rather than be based at great distance from the customers and their needs. In that sense it could be seen that the UK’s competitors for hosting or attracting science-based companies are more likely to be other nations in Europe rather than the emerging markets of India, China or Singapore. The UK should focus on these countries, and use all the tools at its disposal to ensure that it keeps pace with them in its “offer” to multinational companies, and also in its support for home-grown firms. This should include the roles of subsidies, planning laws and also areas such as skills; workers able to adapt to new fields and techniques have been quoted in the past as important factors in the “attractiveness” of sites. The differing innovation landscapes of other large European countries, particularly Germany, seem better suited to retaining, investing in and growing science-based businesses, and a closer understanding of why this is would also be beneficial.

What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 12. Since its re-launch the TSB has been the key government agency supporting innovation in business and creating an environment where businesses are encouraged to invest in R&D and knowledge exchange between universities and business. Its returns on investment, even at what could be described as a very early stage of its existence, have been signiﬁcant, with ﬁgures of 700% quoted recently,178 however the true impact of the 178 www.guardian.co.uk/commentisfree/2011/dec/08/4g-mobile-windfall?newsfeed=true cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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TSB will be seen in the long term and it, and the government, should retain that focus. A more relevant short- term indicator should perhaps be the positive responses of companies that have engaged with the agency’s programmes. 13. Following the last spending review, the TSB has been tasked with doing more on a budget that has remained largely unchanged, with a remit stretching from the promotion of innovation in the regions of England following the abolition of the Regional Development Agencies, through to supporting the new “Catapult” technology and innovation centres. Existing programmes such as the Knowledge Transfer Partnerships and Knowledge Transfer Networks have shown success in bringing university departments and innovative businesses together and it is unfortunate that the recent changes have required the TSB to reduce the investment in these areas. 14. The TSB has made imaginative efforts to cope with this reduction of funding. However, there is some concern amongst businesses that TSB grants are heavily oversubscribed and, as a result, chances of successful applications are very low. If the government is serious about promoting innovation and commercialisation, it will need to properly fund the key government agency tasked with working in this area.

What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 15. The Catapult centres have the potential to bridge the gaps between research and commercial success. However, there are still many details to be clarified about the centres (indeed several thematic areas have yet to be announced) and long-term success will depend heavily on the ability of the centres to attract external industrial funding partners. 16. An area which has been largely absent from the strategies that has an important role to play in promoting commercialisation, and which has perhaps the strongest need for cross-government, long-term support is public procurement. The government procurement budget is orders of magnitude greater than the direct and indirect support provided to research and science-based companies through other programmes. Innovative procurement has the potential to be a “game-changer” in the support and growth of physics-based high-technology businesses, but it needs a strong and visible commitment from the government. 17. Recent announcements from the Cabinet Office have focused on reducing the short-term bottom line costs of the purchase of goods and supplies rather than emphasising the role of procurement as a means of supporting science-based businesses. The Small Business Research Initiative (SBRI),179 steered by the TSB, has been expanding slowly into several government departments, but if it is to achieve its full potential it should be fully embraced by all departments, particularly the larger spending departments such as the Ministry of Defence. The recent White Paper180 has indicated some expansion of the programme, but a more significant step is required.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 18. Yes, but this is not the only solution. The problems of the investment “valley of death” for science-based start-ups, and the lack of private investment capital, are longstanding (even through the economic “good times”) and were well characterised in the ETB’s SET and the City report in 2006. However, the role of venture capital funds investing in early stage funding should not be over-emphasised. There are often legitimate business reasons for commercial funds being unwilling to put money in at the earliest stage, and, in countries where there is signiﬁcantly more money at this level, much of it is leveraged or provided directly by state-funded operations. The government should play its part in providing investment for science-based businesses through directly supporting investment funds and also through agencies such as the TSB.

What other types of investment or support should the Government develop? 19. There is scope for larger companies to invest time and resource in businesses that could potentially form a part of their supply chain, or become business partners, through programmes such as Microsoft BizSpark.181 Such programmes have been evident in other countries but less so in the UK and there should be investigations into what the barriers are in the UK to such projects. 20. R&D tax credits have shown success since their introduction, and have been seen to have a positive impact on business’ decisions to increase or maintain R&D expenditure,182 and also in demonstrating to multinational R&D-intensive companies that the UK is “open for business”. The introduction of the “Patent box” is welcome as an example of long-term thinking in R&D policy, and should have a positive effect on research-intensive businesses in the UK. 179 www.innovateuk.org/deliveringinnovation/smallbusinessresearchinitiative.ashx 180 https://connect.innovateuk.org/c/document_library/get_ﬁle?p_l_id=5116418&folderId=6206066& name=DLFE-66929.pdf 181 www.microsoft.com/bizspark 182 www.cbi.org.uk/pdf/20090204-cbi-r&d-tax-credit-survey-report.pdf cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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21. The recently announced changes to an “above the line” system should also have a beneﬁcial effect, particularly in larger companies where the incentive will be able to act more directly on managers and decision- makers in research departments. There are still some areas where uncertainty could be reduced, particularly in the process by which HMRC assess whether work undertaken is eligible for relief under the schemes. Currently, companies that submit their returns to the schemes do not receive acknowledgement of the eligibility of the claim outside of irregularly-timed audits by HMRC. This process may mean that innovative companies whose work has been deemed ineligible may be left with a tax bill stretching back several years, and reduces conﬁdence on the part of companies applying. An additional focus should be increasing the level of awareness amongst assessors of the roles that physics R&D can play in different businesses across the economy. February 2012

Written evidence submitted by the UK Computing Research Committee 1. The UK Computing Research Committee (UKCRC), an Expert Panel of the British Computer Society, the Institution of Engineering and Technology and the Council of Professors and Heads of Computing, was formed in November 2000 as a policy committee for computing research in the UK. Its members are leading computing researchers from UK academia and industry. Our evidence reﬂects the experience of researchers who each have an established international reputation in computing.

2. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 3. Research into computing has had, and continues to have, a good record of commercialisation. There are however generic problems that face most UK academics (these are discussed first) and a few specific difficulties that are mentioned at the end of this section. 4. It is also important to recognise that, despite the UK’s acknowledged strengths, most innovative research originates outside the UK and always will. It is therefore essential to encourage UK exploitation of overseas research with at least as much energy as is devoted to exploiting UK research. Often, this will require specialist knowledge of the research topic and this will be most easily accessed in university departments. 5. An academic group that seeks to exploit its research commercially needs both competent personnel and financial resources years ahead of having anything to show for it. Most universities cannot give an academic the time they need to invest in building bridges tomorrow; a lecture at 9.00 am Monday is certain; any income from commercialising research is uncertain and will not happen for a few years even if the venture avoids bankruptcy and litigation. 6. Often in UK universities, the central administration taxes departments so much anyway, that the incentives where it matters are negligible. Student satisfaction, such as it is, will always trump industry collaboration, unless there is sustained cash up front that also allows almost all of the ideas to fail. Some will succeed, but only if lots can try. Individual scientists and engineers in universities can do wonderful work with industry; unfortunately, their university management have different priorities (often derived from central Government actions such as the REF) that mean that members of staff are incentivised to deliver peer-reviewed research papers and high student satisfaction scores ahead of commercialising their research. Furthermore, the needs and objectives that academics have for publishing world class research can often be at odds with those of the private sector where exclusivity and non-disclosure agreements may be required in order to protect ongoing investments. 7. Getting early-stage funding is hard for many academics: most venture capitalists and business angels won’t touch companies that do not already have revenues and customers. The really, really early-stage venture funds seem to have dried up, and there is neither resource nor will for most universities to invest from their own funds. 8. There’s also the issue of universities misunderstanding the value that pure research brings to a start-up, and therefore over-valuing the technology they’re licensing, either to a start-up or an existing company. It is rare for universities to have the expertise to make these judgements, and to negotiate commercially realistic deals on commercially realistic timescales. Universities often demand far too much equity in start-up companies, jeopardising their success. 9. Academics (and University management) often confuse great technology with great business. There may be research that is technically interesting and that is valued very highly by the researchers and the university, but that has no commercial value at all since there is no reasonable plan for return on investment. We need an effective way of establishing connections between technologists who have great ideas and equally creative people who can build equally innovative business plans that allow the commercialisation of those ideas for which there is a practical route to market. 10. In some of the more entrepreneurial US universities academics are only paid by the university for 75% of their time, and expected to go out and consult, create companies or otherwise generate wealth with the remaining 25%. This seems to set up effective industry collaboration that brings money back to both the academic and the institution (in the form of research grants, studentships etc to keep the pipeline of ideas cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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flowing). Of course in the US professors are able (if they have the income to cover it) to hand off many responsibilities like labs and supervisions to “assistants” (typically PhD students) to maximise the utilisation of their own time spent on research, scholarship and lecturing. 11. Taxing academics’ consulting incomes or demanding stakes in their start ups is short sighted and a disincentive. It is far better to encourage your entrepreneurs to be highly successful in the hope they’ll then come back and give you new buildings, scholarship programmes and so forth. 12. Perhaps a more complex issue is whether a university has right to exploit research that the academic chooses not to exploit personally although, in many fields such as Computing, virgin intellectual property is rarely valuable unless it comes with the inventor as part of the package. 13. Computational science infiltrates other disciplines, so that commercial exploitation of computing research isn’t just packaging a product but can involve quite deep changes to the way one thinks about the problem being solved. Data intensive medicine currently demonstrates this.

14. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 15. Computing research is commercialised in ways that may differ markedly from the approach in other sectors. 16. Software “apps” can be marketed through App Stores, such as Apple Inc’s iTunes store, but competition is intense, individual apps sell typically for 99p, and almost no-one recovers the realistic costs of development. 17. Some innovative software-based services have been commercialised extremely successfully—Facebook and Google being the leading examples—but the commercial model is extremely unusual, as it requires huge investment to provide free services so that a vast population of users is developed and monetised through advertising revenue and added-value services.

18. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 19. The UK has always been in the forefront of innovation in computing. The Manchester University Small- Scale Experimental Machine was the world’s first true computer (June 21 1948); it was rapidly followed by Maurice Wilkes’ Cambridge University computer EDSAC (1949), which was the first computer with integrated input-output. EDSAC was commercialised by Lyons Bakery, becoming Lyons Electronic Office (LEO, 1951), the first commercial computer, running the world’s first commercial software. 20. Since then, the UK has invented and patented the floppy disk, virtual memory, several important programming languages, software development methods, electronic design tools, and several computer architectures. Although some of these inventions have led to significant UK-based companies (ARM plc and Autonomy plc, for example), the UK does not have the share of world markets in computing that our history of innovations would suggest could have been achieved. 21. The reasons for this are many and interrelated: the post-WW2 economic situation relative to the USA, the relatively small home markets, the relatively small size of R&D investment in the UK (especially in Defence equipment), the decisions taken by Government agencies regarding UK patents, the failure to implement the recommendations of the Bide committee in the 1980s following the successful Alvey programme, and the loss of control of Government IT purchasing policy in the 1990s, when the Public Purchasers’ Group dissolved and the Central Computing and Telecommunications Agency was replaced.

22. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 23. The TSB KTNs and KTPs have attracted considerable interest and involvement and they have been accompanied by much more contact between academia and industry, but it is difﬁcult to determine direct causal relationships. Within the TSB programmes there is an inherent desire that they are led from the private sector. Whilst the private sector is a key ingredient, if we are serious about bridging and exploiting the UK research base, universities must be not only allowed but encouraged to lead in these initiatives. 24. A scheme such as Smart (renamed from GRAND) offers a vital proof-of-concept funding source that aims to seek out projects of creativity, innovation and risk. The appraisal process, which uses three “appointed assessors”, may however contradict this aim: if decisions are based on assumptions of known facts, it is possible or even likely that safe, low risk options will be selected, rather than picking out ambitious or speculative proposals.

25. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 26. The Government has announced that the TSB will establish an Open Data Institute and a Connected Digital Economy Catapult. We welcome both these initiatives. The experience from Germany’s Fraunhofer cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Institutes is that it may be necessary to provide public support for such centres for more than a decade before they become fully self-sustaining, but that this investment can then deliver great beneﬁts.

27. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 28. The improved R&D tax credits and the tax incentives for investing in start-ups provide Government support for private equity investment in commercialising computing research. Private equity is, however, risk adverse and needs confidence to invest. It may spend a relatively large amount of money to investigate and protect this potential investment. Often relatively small amounts of grant money will simplify and streamline this process. 29. Better business plans would attract greater VC funding and improvement here is a priority. One UKCRC member saw a Stanford spin-out become a $2B company and the only reason it succeeded was because the third person involved after the two Stanford Professors was a Chief Financial Officer who said “nice but it won’t fly. Let’s do it this way” and pretty much invented the technology IP licensing model. 30. We need better mechanisms, including forums and funding, for connecting technical innovators to the right kind of business entrepreneurs (with emphasis on the right kind). Good research without a business plan dies on the vine.

31. What other types of investment or support should the Government develop? 32. As stated earlier, UK computing research has a good record of commercialisation. The opportunities in the future are very great, because of the strength that the UK has in many key areas of computing science, micro-electronics, communications and software engineering. We cannot say whether or not these strengths will be enough to overcome the disadvantages of low Government R&D investment, failure to use public purchasing power to pull through strategic research strengths into products and services, and small home markets. 33. We would like to see the Government support the development of markets for a new generation of secure and reliable software products by working with the European Commission towards Europe-wide product liability legislation to cover software products. At present, the software industry is unique in being able to sell products that contain many functional defects and security vulnerabilities without any consequent liability: for example, when a security breach occurs because of a wholly-avoidable software vulnerability, the software manufacturer and vendors simply blame their customers for failing to apply maintenance patches fast enough! This is increasingly unacceptable. If a timetable was announced for the introduction of strict liability (with appropriate consultation over how this would be interpreted and enforced), the software industry would have the incentive to adopt the modern software engineering methods that can largely eliminate these problems, and the UK would beneﬁt twice: once through access to much improved products and once through the take-up of computing methods, tools and expertise where the UK is a world leader. February 2012

Written evidence submitted by the National Farmers’ Union The National Farmers’ Union (NFU) is pleased to respond to the Science & Technology Committee Inquiry: Bridging the “valley of death”: improving the commercialisation of research. The NFU has some 55,000 farmer and grower members in England and Wales and represents the great majority of full time commercial farmers.

1. Executive Summary 1.1 The NFU believes that significant and urgent changes are needed in the current political, regulatory and scientific frameworks to create the right conditions for improving the application and commercialisation of research. 1.2 Science and its commercialisation, whether that be new pieces of technology, new products or simply better adoption of best practice, is crucial to the success of the agriculture industry in facing the challenges ahead. However, the pipeline carrying science through to real products and practices which farms can use is fractured following years of under investment, particularly in the applied sciences and translation of research. 1.3 The UK has been world leader in agricultural research exporting ideas and technology over the globe, but a shift away from evidence-based regulation in Europe, particularly with regard to biotechnology, is leading to isolation. It creates a climate that deters rather than fosters commercialisation of research outputs. This in turn stifles future research investment in the UK from the private sector. 1.4 The agricultural industry increasingly specialised, which in turn required more focussed delivery of the commercial outcomes from research. 1.5 In England the privatisation of our national knowledge transfer capabilities and replacement with short- term, and often environmentally focussed projects, has further fragmented delivery channels for research and cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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commercialisation opportunities in agriculture. Therefore, the structure of the knowledge transfer and exchange network is long-overdue a strategic overhaul to get information ﬂowing again in both directions.

1.6 Years of low profitability have eroded confidence in investment and commercialisation of research outputs targeted towards the agricultural industry. If the agricultural industry itself is profitable, it will help to improve the necessary pull and opportunity for investment in commercialisation of the research it needs.

1.7 The NFU wish to see the optimal use of European funds such as RDPE and Horizon 2020 to address genuine industry research needs and knowledge transfer to gaps which then improve the chance of commercial uptake.

1.8 The Government must tackle contradictory national and European policy messages which constrain farm businesses from investing in the commercial outputs from research.

1.9 The agricultural industry already makes a substantial ﬁnancial contribution to applied research via the AHDB levies. However, this effort alone is not enough to address market failure and there is a need for better join up with other public funding routes such as the BBSRC.

What are the difﬁculties of funding the commercialisation of research, and how can they be overcome?

2. Science, technology and their subsequent commercialisation are absolutely crucial to ensuring that future growing demands for food, fuel and fibre can be met from a limited land area. The UK farming industry faces the challenge of lifting agricultural productivity at the same time as reducing our environmental footprint, with diminishing, more costly, natural resources and using a finite amount of agricultural land. The renewed efforts to focus scientific research on productive agriculture seem to have struck a chord with Government both in the UK and in Europe and we’ve seen a number of high profile reports on this, notably, the Foresight report of 2011 (Future of Food and Farming).183 Whilst this is encouraging, to actually achieve tangible advances it requires investment in the sort of research that farmers can then apply to their businesses. While the “early discovery stage” of R&D in the UK remains strong, there has been a substantial cut in publicly-funded agricultural science, in the UK and worldwide, since the 1980s. This has been particularly noticeable in the applied sciences and the translation and demonstration of research which are a critical step in taking ideas through to commercialisation. This has been frequently referred to as the fracture in the “discovery pipeline”. This issue has been noted in numerous reports including the All Party Parliamentary Group on Science & Technology in Agriculture report of 2010,184 the NFU’s own Why Science Matters for Farming report of 2008.185

3. This is further compounded by the profitability of agriculture. A more profitable industry should also provide more fertile ground for the science and research coming from government and industry. However, it is only in the last three years that profitability of agriculture has increased, and this has not been universal in all sectors. In much of the decade prior to 2008, farm businesses saw low levels of profitability. Farm businesses either lacked the funds to reinvest or the returns from the marketplace made investment unviable. Arguably, a strategy for renewal, replacement and investment was usurped by a make-do and mend philosophy. Of course, with low profitability in agriculture and what might have been perceived as a shrinking market place until recently, agriculture is a less attractive proposition for the intermediaries involved in the commercialisation of science and technology. In time, this is reflected in shrinkage of the intermediaries themselves and also their investment in science and research.

4. Regulatory compliance will have driven some farm investment, but this is often reactive and can erode a farmer’s ability to make more proactive choices and investments. This means both competition for what investments farm proﬁts might allow and perhaps more importantly, a culture where farmers have effectively been told what they should invest in rather than undertaking their own appraisals and decision making. This will all have shaped industry responsiveness to the application of research at the farm level. We are now seeing improved investment on farms, with new machinery and buildings tending to be the priority areas for spend. This will undoubtedly impact on uptake of R&D and science, but consideration needs to be given as to how this could be accelerated.

5. The timescale for agricultural research to deliver can be long and this can further deter private investment and ultimately the rate of commercialisation of research. For example the, the uptake of innovations in agriculture can take many years. The Cross-Government Food Research Strategy quoted a “long lag of perhaps 15–25 years between research expenditures and widespread implementation at farm level”.186 This emphasises the urgent need to take a long-term, strategic view now such that we are well-placed to meet the future challenges to agriculture. 183 “Future of Food and Farming”, Foresight report of 2011 www.bis.gov.uk/foresight/our-work/projects/published-projects/global-food-and-farming-futures/reports-and-publications 184 “Support for agricultural R&D is essential to deliver sustainable increases in UK food production”, APPGSTA Report 2010. www.appg-agscience.org.uk/linkedﬁles/APPGSTA%20-%20David%20Leaver%20report%20Nov%202010.pdf 185 ?????? 186 The Cross-Government Food Research Strategy www.bis.gov.uk/assets/bispartners/goscience/docs/c/cross-government-food-research-strategy.pdf cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 6. The structure of agriculture can provide a barrier to uptake and commercialisation of the results of scientific research. Even discounting the very smallest farms, 96% of England’s agricultural output is generated by some 56,000 farm businesses. These farm businesses cover many different sectors with sometimes quite different issues and commercial opportunities. This fragmentation presents a significant challenge for intermediaries to “take” commercialisation to the farm gate considering the breadth of the industry. This is compounded by the fact that despite an instinctive drive to innovate and experiment, many small farming businesses are often time and resource poor leaving little opportunity to explore commercial application of new R&D technology. So, perhaps one of the greatest challenges for the agriculture industry is getting take up of existing knowledge and best practice. A positive step here would be to look at examples where similarly fragmented industries have seen innovation rapidly spread from the individual business level to become adopted more widely and have real commercial potential. 7. The translation of science in agriculture is arguably one of the biggest challenges for agriculture in making a functioning connection between research and the industry. There is significant opportunity to look at how public/private partnership could work better in this vital area. Who are the advisers going on to farms already? How can existing industry led initiatives be better harnessed and coordinated to provide a translation role? How equipped are they with regard to science and research, and what can they do to promote it? These are key points which have already been identified in the House of Lords European Union Committees report (“Innovation in EU Agriculture”) 2011.187 Here the NFU shares the conclusion of the Food Research Partnerships’ sub group on Translation in Agri-Food188 which states that better co-ordination of this critical part of the research pipeline can help strengthen “both science-push and market-pull for research”. Building on developing better partnership working between industry sectors, existing industry initiatives and research providers will breed greater ownership and ultimately better relevance of research. The NFU see that the AHDB has an important role here in helping address the “valley of death” as one of the key players in the provision of relevantR&Dknowledge transfer directed at helping agriculture and horticulture be more competitive and profitable and at the same time environmentally sustainable.

What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 8. The UK has traditionally been a world leader in agricultural R&D but it is essential that this reputation is continued and furthered over the coming years. Many UK R&D centres have great traditions of being global experts on issues such as climate change and animal health. The knowledge from these institutions benefits not just UK farmers and growers, but can be transferred from these institutions globally to assist in securing food supplies globally. It is positive that UK-based research finds commercialisation in other parts of the world; we can and indeed should all learn from each other. 9. The regulatory framework must also be conducive to retaining UK research and commercialisation opportunities in the UK: In 2010 the UK Cross-Government Food Research And Innovation Strategy189 stated that: “The Government will need to draw on the best expert advice to work with and influence the EU and the international regulatory system, to ensure an effective regime that appropriately balances benefits and risks, including for emerging scientific developments such as genetic modification, new pesticides, nanotechnologies and irradiation, to improve the efficiency with which new technologies can be managed and where appropriate adopted, with relevant and proportionate safeguards.” However, as an example, the approval process for cultivation of GM traits in the EU has seen just two products approved in the European Union in the last 14 years, despite the rigorous safety process.190 This political climate has led to the recent and very public withdrawal of BASF from continued research in Europe. The ripple effect of this is much wider than purely the cultivation of GM. It sends out a message which has much wider implications for the commercialisation of all sorts of new technologies in agriculture. Businesses and researchers will see little incentive to base themselves in the UK or indeed Europe when their work is considered unlike to find a commercial outlet here. Excellent work by the John Innes Centre on blight-resistant potatoes191 and Rothamsted Research on aphid resistant wheat192 are just two examples of UK research centres currently working on innovative biotechnological solutions to reduce reliance on pesticides. However, the current regulatory framework and lack of political will means that the UK is unlikely to benefit from the commercial outputs with the net result being a loss to the UK agricultural research community. This can only 187 House of Lords European Union Committees report (“Innovation in EU Agriculture”) 2011 www.publications.parliament.uk/pa/ld201012/ldselect/ldeucom/171/17102.htm 188 Government’s Food Research Partnership sub-group report on the “Translation of Research in Agriculture”. 189 UK Cross-Government Food Research and Innovation Strategy 2010. www.bis.gov.uk/assets/bispartners/goscience/docs/c/cross-government-food-research-strategy 190 Approvals of GMOs in the European Union, EuropaBio, October 2011, www.europabio.org/sites/default/files/position/approval_of_gmos_in_the_european_union.pdf 191 http://www.tsl.ac.uk/lateblightqa.html 192 http://www.rothamsted.ac.uk/ProjectDetails.php?ID=5010 cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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be addressed with a combination of strong leadership from Government and a drive for better evidence-based and enabling regulation.

What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 10. The NFU is a supportive member of the Sustainable Agriculture and Food Innovation Platform (SAFIP) Steering Group of the TSB. It is early days to assess the improvements it has made to the commercialisation of research in the agri-food sector. The SAFIP193 was launched in October 2009. Its objective has been to stimulate the development and adoption of new technologies to help improve the productivity of the UK food and farming industries, while decreasing the environmental impact. It would be premature to judge whether the research funded by this Innovation Platform will result in commercialisation given the lengthy pipeline, but the NFU is supportive of the concept. 11. Importantly, the success of the TSB in the commercialisation of research will ultimately depend on the continued provision of applied research. While the whole research chain is important, it is applied research which shapes theoretical ideas to the point that they can start to show some potential to address real practical challenges to agricultural businesses. It is this key link in the chain to commercialisation that has been eroded in recent years and we refer back to our response in section 2.

What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 12. The new BIS Research and Innovation Strategy194 published in 2011 provides positive high level messages about the need to help businesses grow, but for the agri-food sector it lacks any clear ownership or timeline for actions. It states that it aims to increase levels of innovation including the commercialisation of R&D technology transfer and diffusion and adoption of innovation and to work with the Sector Skills Councils. All these elements are necessary to create an environment that fosters commercialisation of research in the agricultural sector. So, whilst we agree with the sentiment of the strategy, there is a lack of ownership which is also reflected within Defra in terms of their R&D and knowledge transfer activities. 13. To support the opportunities for commercialisation it is important that we have a profitable and sustainable industry delivered by a world class, competent and professional workforce whose professionalism is recognised and rewarded. The NFU works closely with Lantra, our sector skills council, and this relationship has developed and improved over the past few years through the Agri-Skills Forum and strategy “Towards a New Professionalism” which brings together all the major organisations within agriculture—NFU, Lantra AHDB, Agricultural colleges and Defra to work towards its aims and objectives. However, there is scope for improvement. For example, Lantra could develop closer communication with those undertaking training and skills development and to become more focussed on skills development rather than formal qualifications. Over the past year Defra have worked with Agri-skills partners to ensure there are discussions with BIS on the concept and requirements of professionalism within agriculture. The Agri-Skills strategy also highlights the importance of business skills, outlining that this should also cover non-financial business skills, and in particular, leadership, and entrepreneurial skills. There needs to be specific promotion of the importance of acquiring business skills in the sector. Training delivered through the RDPE programme should also reflect the importance of business skills through the training offered and available to farm businesses. Better business and entrepreneurial skills help the industry to be better placed to take advantage of research and provide more fertile ground for commercialisation. We will be engaging with Defra over the next few months to highlight the priority areas we would like to see delivered through RDPE.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 14. No, the goal of agricultural research is not quick profit. The government needs to recognise that it must also take responsibility to foster closer working with private sector and encourage or financially support certain areas of research which may never happen as a result of purely commercial drivers. The Taylor review, “Science for a New Age of Agriculture”195 was published in 2010 and called for greater private sector investment in research. While the NFU agrees with this ambition in part, there are notable examples where there is market failure and public investment and support is needed. An example here is the development of plant protection products for minor crops. Following the EU review of active ingredients there are notable gaps in the armoury of products available for use in certain minor crops in the UK. The high costs, and long run-in times for the development of new products, combined with their relatively small acreage, reduces the commercial attractiveness for private sector investment. To put this in context, a briefing from the Fruit and Vegetables Task Force196 on the approvals process for plant protection products stated that: 193 www.innovateuk.org/_assets/0511/agriculture&foodinnovationplatform2011.pdf 194 www.bis.gov.uk/assets/biscore/innovation/docs/i/11–1387-innovation-and-research-strategy-for-growth.pdf 195 archive.defra.gov.uk/food-farm/farm-manage/documents/taylor-review-response-110131.pdf 196 Briefing from the Fruit and Vegetables Task Force archive.defra.gov.uk/foodfarm/food/policy/partnership/fvtf/documents/briefing-fv-approvals.pdf cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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“Research by the Horticulture Development Company (HDC) suggests that the registration process of both active substances and products takes about ﬁve years on average and costs between €200,000 and €2 million for biological products and estimates from agri-chemical companies suggest that registration can take 10–15 years for chemical pesticides with an even greater cost”. There is no Government funding for research into minor uses of herbicides and the UK spends less than any other European country in this respect.197 This means that in the UK the cost of ﬁnding solutions is already largely borne by growers through industry levy bodies.

What other types of investment or support should the Government develop? 15. For agriculture, the Rural Development Programme for England currently provides a resource to support the commercialisation of science and research and capital investment. The current RDPE will end in 2013, with its future scope dependent on the outcome of the CAP reform process. Inevitably, there will be some form of successor to RDPE and some may suggest that Government utilise this to offer some support in future. However, this needs to be approached vigilantly. 16. Firstly, the RDPE has been somewhat disjointed in practice and needs better integration with training and capital grants to maximise its potential. The initial approach to delivery was through regions, which prevented industry wide or sector specific approaches. Although delivery has recently been centralised, the programme has yet to gather momentum. It would seem unlikely that RDPE funds would not be fully utilised, but there remains a question over whether the effectiveness of this budget has been maximised. For example, the potential to link training with capital grants has not been exploited eg before receiving funding for reservoirs, farmers receive training for water/resource management issues. The use of lots of individual providers has not been conducive to directing farmers to the next piece of relevant training or building up a sector increasingly receptive and hungry for the latest research. Such integration would be an obvious benefit, demonstrating that applicants will make best use of that investment or technology. Evaluating the success of RDPE in facilitating R&D uptake is essential before committing future resources. 17. Secondly, the size of the future RDPE resource can be questioned. Currently, 80% of RDPE funding is skewed towards agri-environment measures rather than targeted at knowledge transfer or capital investment. More importantly, the UK’s allocation of rural development funds through the CAP is inadequate. Of all EU member states, the UK currently receives the lowest share of funds on a per hectare basis. To compensate for this shortfall, farmers’ direct payments are currently transferred to rural development budgets. This disadvantages UK farmers versus EU competitors. It is akin to taxing a business solely to fund an incentive- based scheme back to that same business. This makes rural development funding through the CAP a contentious issue for farmers and we believe CAP reform should not again allow such transfers. If RDPE is to be considered a resource to support R&D related ambitions, it is essential that the UK achieves this through a better allocation of P2 funds and not through raiding the direct payments budget which disadvantages all farmers. 18. Providing the right signposting and support to help businesses to get involved in the new future of European-level research and innovation funding, Horizon 2020, will be critical if innovation and commercialisation is to result. Key areas of improvement in Horizon 2020 that we believe will increase the likelihood of the uptake of research by farm businesses is the inclusion of knowledge exchange from the earliest stages of project development. For this to happen, the research must firstly be relevant to commercial activity of some kind and must contribute to innovation in farm businesses that will increase their productivity and competitiveness. Making this early connection will be essential if the research from Horizon 2020 is to remain relevant and taken through into innovative products and practices by the private sector. If there is no early adoption nationally of the outputs of UK research, the return on investment for the UK is severely compromised. 19. Another key element of improving the commercial success of Horizon 2020 will be in providing research scientists and their consortiums with the best support and co-ordination possible from Government. We have already highlighted the significant levels of bureaucracy associated with accessing such European funds. Even the best project concepts fall by the wayside as a result of the time-consuming and complex application process itself, which is not a natural skill for many research scientists. We are partially reassured that the intention is for the rules for applying for Horizon 2020 to be simplified, harmonized and the reporting and auditing will also be streamlined. We are also pleased to learn that there will be increased focus on innovation and commercialisation. However it will need the UK Government to push at the European level for these promised to turn into reality. There is also a role for Government to provide guidance and support in helping co-ordinate the most effective proposals which genuinely help meet the strategic challenges for the agricultural sector. 20. The relationship between Horizon 2020 and other Community policies, such as the CAP, is vitally important. The objectives that the Commission has recently identified for CAP reform may fail to recognise what should be the over-riding objective for reform, which is to help agriculture achieve a position where it can be less reliant on public support, even more market-focused and thus contribute to Europe’s growth agenda. The link that must be achieved is orientating agriculture and the CAP towards meeting the EU2020 goals 197 Meeting on the Future of Weed Research organised by the HGCA (2008), www.aab.org.uk/images/Future%20of%20Weed%20Res_p5_7.pdf cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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(smart, sustainable and inclusive growth). Therefore the overarching role of the Horizon 2020 should be an enabling one ie allowing agriculture to achieve its potential in terms of growth by becoming more competitive and productive through the application of R&D. 21. There must also be complementarity between Horizon 2020 and the new European Innovation Partnership to maximise the likelihood of commercial success. The new European Innovation Partnership (EIP) “Agricultural productivity and sustainability” will be funded through the EU Research and Innovation Policy. We believe that these EIP operational groups should utilise and strengthen existing partnerships and networks and not duplicate. It will also be vital that there is complementarity between the activities of the EIP and Horizon 2020. February 2012

Written evidence submitted by the Ethical Medicines Industry Group In response to the Science and Technology Select Committee’s call for evidence, the Ethical Medicines Industry Group (EMIG) has prepared the following submission that looks primarily at the current issues recognised by EMIG members in the commercialisation of research. Please note that EMIG has only provided a response to the questions for which it is appropriate to do so. By way of background, EMIG is the trade association that represents the interests of over 170 pharmaceutical companies and allied organisations based in the UK. EMIG member companies range from start-ups to highly developed research-intensive businesses delivering essential products to patients, while continuing to invest heavily in the ﬁght against disease. They are commonly, but not exclusively, small to medium-sized enterprises (SMEs) which specialise either in the discovery and development of medicines to treat rare and underserved diseases, or focus their efforts on discrete disease areas, for example diabetes and respiratory disorders. EMIG member companies employ approximately 20,000 people in the UK and have a combined annual turnover of £4 billion.

Key Recommendations — The NHS must become a full and integral part of the medicines development process with SMEs. It must institute a wide-spread, commercially-aware culture that embraces research and organisationally enables this to be performed throughout its entire infrastructure, especially at a local level. — EMIG welcomes the proposals set out in the Government’s Life Science Strategy aimed at increasing collaboration between the public and private sectors. However EMIG believes that a range of de- risking measures are also needed to ensure the wider commercialisation of R&D, especially by SMEs. Best practices can be adopted from successes in other sectors. In particular the Technology Strategy Board (TSB) should have a greater brokerage role in forging new collaborative projects. SMEs need direct assistance to navigate the range of collaboration possibilities with the public sector. — HM Treasury should be prepared to provide direct funding for aspects of early phase clinical work performed by SMEs. In time, this would reap greater tax returns due to more products coming to market more quickly. — Regulatory authorities must be an integral, and not arms-length partner in the development of new ways of working between the public and private sectors. The Medicines and Healthcare products Regulatory Agency (MHRA) should engage with SMEs in a new, open and wide-ranging dialogue on ways to safely deliver new medicines to patients (and especially those with signiﬁcant unmet medical need) more efﬁciently.

EMIG Response to Committee Questions Pharmaceutical companies are among the highest investors in R&D. In addition to the well-known larger companies, there are numerous SMEs which, typically, lack the resources required to conduct all necessary steps from basic research to the marketing and distribution of ﬁnished products—essentially the commercialisation process. Outlined below are what EMIG believes to be the main factors behind this, and possible solutions to alleviate the current problems.

1. What are the difﬁculties of funding the commercialisation of research, and how can they be overcome? 1.1 Firstly, EMIG believes that there is a worrying lack of interaction and integration of the NHS with the development of the pharmaceutical sector and research institutions. The NHS should be fully integrated from the beginning of the R&D process in order to help identify where the future focus of research should lie. Having commissioned the targets, the NHS should also be integrated into all the development stages—from target concept to reality. 1.2 Furthermore, the ﬁnancial and regulatory challenges associated with the commercialisation of research demonstrate the need for future progress to be made through greater collaboration between organisations in the public, private and charitable sectors. EMIG welcomes the proposals set out in the Government’s Life Science cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Strategy aimed at increasing collaboration between the public and private sectors. However, a range of de- risking measures are also needed to ensure the wider commercialisation of R&D, especially by SMEs. 1.3 The current levels of Risk and Return on Investment (RoI) is another key area which the Committee may wish to examine as part of its inquiry. In terms of the UK bio-pharmaceutical sector, drug discovery and development is a challenging and expensive business. This situation is compounded by the fact that most public sector funding bodies take the research from concept through to proof of concept but do not proceed any further. There is then an expectation that private sector funders will take on the commercially attractive projects and take them to market. However, this by and large is not happening for a variety of factors, in particular the fact that the early stage funders of research do not have a specific market in mind when they fund the initial research. 1.4 The long gestation time between a novel idea and its translation into a final product therefore carries huge uncertainty and risk en route with regard to the probability of there ever being an end-product that is commercially viable. 1.5 EMIG believes that a variety of reduced risk ‘pro-collaboration’ strategies are therefore needed. In particular, EMIG believes that the Technology Strategy Board (TSB), which positions itself as a catalyst for the commercialisation of innovative research and an honest broker between industry, academia and government, is ideally placed to play a critical role in the development of these collective reduced risk activities. 1.6 In terms of financial support, for SMEs such as EMIG members there is no substitute for direct research funding support from Government. This should include effective longer-term funding from the Government at the early stage of companies’ development. Tax breaks or co-funding arrangements are also useful, however it is often only large pharma, with their large legal/financial infrastructures who have the know-how and resources to access them. 1.7 Additionally, we are aware that a great amount of EU-level funding is potentially available through the Framework programmes and that much of this is to be targeted at SMEs. However, the EC definition of an SME actively excludes a large number of (descriptively) small/medium-sized companies from accessing it. EMIG therefore asks the Government to lobby for a widening of the EC SME criteria. A review is surely due as the SME definition was introduced in 2003. 1.8. Ideally, we would like to see HM Treasury seeking innovative ways to help fund especially early phase clinical work. The potential tax revenues after some years would be much increased as more innovative medicines are produced. This is because much of the required new clinical science can cost up to £10 million in order to gain some evidence of activity or lack of side effects and this part of the process is hugely risky. 1.9 There are a number of initiatives that could ease the funding gap, but not take it away totally. Tax incentives and Government schemes aimed at academia and start-up companies are part of the solution. However, established pharmaceutical businesses (small, medium or large) have a key role to play as they understand the market beyond the UK NHS and have the resources to drive efficient manufacturing and distribution. A degree of matched funding from Government may also prove to be part of the solution—the NHS would then benefit from preferential pricing and a proportion of the revenue from the product (medicine, device or diagnostic). 1.10 We would also support the view promulgated by our sister organisation, the BIA, that a Citizens’ Innovation Fund should be introduced. 1.11 Finally, regulatory authorities must also be an integral, and not arms-length partner in the development of new ways of working between the public and private sectors. The MHRA should engage with SMEs in a new, open and wide-ranging dialogue on ways to deliver safely new medicines to patients (and especially those with significant unmet medical need) more efficiently. One key area is to progress a dialogue on how to incorporate “real-world data” in a smart and consistent manner throughout the drug development process. With its enormously heterogeneous population, the UK could be the world leading place to conduct such research.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 2.1 Given the expensive and uncertain nature of commercialising research, EMIG believes that the pharmaceutical sector has to be included in this category. 2.2 The causes of these uncertainties are multiple and well-described. The solutions are therefore also multiple but should focus on the “inventor” having discussions with the “buyer” from the outset of the discovery process and for that process to be conducted in a more open and progressive way throughout. 2.3 Drug discovery and development is now too difficult and resource intensive for industry, academia or health services to try to do it alone. More people are needed who understand the interface between science and technology, and commerce as we have outlined in section 1.5. 2.4 Pursuant to this theme, funding models and other incentives (eg market-driven mid-stage funding from bodies such as the TSB), are only part of the solution. Indeed we believe that recent Governments have done cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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the biotechnology sector a very good service with the R&D tax credit system and the new patent box legislation being good news for all entrepreneurs in research intensive industries.

2.5 For start-up companies there is a limit to the degree that Government intervention can make these businesses a success. The business model and its execution are what matters and they depend on the quality of management for success. Many start-ups therefore fail due to incompetent and sometimes avaricious management, rather than lack of funding or inherently poor technology.

2.6 The leadership of any start-up company must comprise experts in (1) commerce and business development (2) ﬁnance and (3) science and technology. It cannot be assumed that a seasoned academic, whose passion is a speciﬁc technology, possesses the right balance of skills to lead that technology to commercialisation. If such balance of expertise cannot be found, then that business needs mentorship by people with the requisite skills. As such, it was very much welcomed to see EMIG’s suggestion for business skills training for start-ups to be actioned in the recent Life Sciences Strategy.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

3.1 The recent and continued exodus of late-stage pharmaceutical clinical research from the UK on grounds of time, cost, reliability and sometimes quality, highlights a major problem to the commercialisation of research for UK bio-pharmaceutical companies.

3.2 The UK is a disproportionately expensive place to conduct clinical research, with SME pharmaceutical ﬁrms left feeling completely disenfranchised by the continuing practice of adding huge and no-added-value overheads to clinical research fees. EMIG believe this needs to be addressed as an immediate priority.

3.3 EMIG would however like to praise the Government’s recent efforts in increasing the competitiveness of the UK life sciences sector, and looks forward to the implementation of the measures outlined in the Life Sciences Strategy. As ever, it is the implementation stage as opposed to the initial rhetoric whereby the impact of such measures can be assessed.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

4.1 To its credit, the Government has introduced a number of measures aimed at addressing this issue. For example, the creation of the Health Research Authority (HRA) is a move that was warmly welcomed by the wider sector, and EMIG has had some productive conversations with the newly established body on ways to improve the clinical environment for the commercialisation of UK R&D.

4.2 EMIG looks forward to working closely with the HRA on this issue in order to ensure that the recommendations laid down by the Academy of Medical Sciences (AMS), and adopted by the Government as part of the 2011 Growth Review, are implemented in full, in particular the development of a more proportionate and streamlined system of regulation.

4.3 Furthermore, EMIG believes that the recent publication of NIHR recruitment performance league tables should be welcomed by industry, with top-performing Trusts being rewarded appropriately by Government.

4.4 EMIG also very much welcomes the appointment of Candy Morris as the NIHR’s NHS Trust Research Champion. We believe this will provide an increased focused on the beneﬁt of research across the health service which is a move that should be welcomed by industry.

4.5 Whilst the TSB has had its criticism, the experiences of EMIG members who have had opportunities to engage with it are largely positive.

4.6 One EMIG member has recently been an assessor for three recent Life Science competition awards, including that for Regenerative Medicine. In all of these the TSB took care to ensure that the applicants for grants understood the parameters for awarding grants and that the assessors knew what the applicant’s submissions should provide as evidence for their worthiness. This was a well-planned and well-executed government effort to stimulate young companies to work with universities to translate science into commercial reality.

4.7 In addition, applied ‘innovation platforms’ such as those for Assisted Living and Stratiﬁed Medicine have helped create consortia which have considerable commercial potential.

4.8 The TSB should therefore be congratulated on its efforts and continue to receive government support where appropriate. As referenced in section 1.5, the TSB is well positioned to take a wider brokerage role in research consortia formation and EMIG would welcome greater opportunities for engagement with it. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 5.1 EMIG welcomes the Government’s recent commitment to the development and sustenance of a vibrant life sciences industry in the UK and the measures to be taken to achieve it, which were described in the 2011 “Plan for Growth”. 5.2 However EMIG is concerned that the new streams of available funding proposed in the 2011 Autumn Statement are barely sufficient to sustain, let alone stimulate the desired levels of growth in life science R&D. 5.3 It is vitally important that the focus on improving the commercialisation of research continues beyond the current Parliament. A short-term approach to this issue will not deliver a profitable life sciences ecosystem for the UK which is the fundamental critical factor for the long-term success of the sector. 5.4 A solution could include a new “open” structure for drug discovery and development. One suggestion for a model could be: Zone 1—Target discovery, assay development and validation; supplied by academia, research councils and translational medicine organisations. Zone 2—Candidate Hit, Lead and Optimisation through to end Pre-clinical; supplied by SME’s with specific therapeutic area/technology foci. Zone 3—Clinical Development, Formulation development, Regulatory; supplied by established pharmaceutical research businesses.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 6.1 EMIG believes that the UK should look to encourage more private equity investment in order to ensure the wider commercialisation of clinical research. Matched funding or grants with shared risk and reward are essential to stimulating investment. 6.2 There may also be another option which involves more direct investment in small companies. The old SMART R&D scheme was comparatively generous in its funding and was prepared to take risks. It enabled many companies to get established and then grow their business without diluting their ownership. This was a very attractive and successfully run scheme, and EMIG members would therefore support its re-introduction.

7. What other types of investment or support should the Government develop? 7.1 An additional idea could be to award ‘innovation vouchers’ to potential high growth companies which can be spent on accessing equipment support and services from universities. February 2012

Written evidence submitted by the Energy Technologies Institute (ETI) Summary 1. There are two critical factors in commercialising research outputs—having a strong base of innovative ideas and having a rapid (and innovation hungry) market accessible through a development and implementation route where risk is understood and can be effectively managed. Both of these require high calibre people and organisations where the necessary processes and culture favour “risk taking in a controlled way”. The quality of people needed throughout this chain cannot be underestimated. 2. The Energy Technologies Institute provides a unique perspective on this issue having been set-up in 2007 to address this “innovation transfer” and risk management issue in the UK energy sector. The ETI was established as a public-private partnership between major industry groups and the UK Government with public sector representation on the ETI Board from both the Research Councils and the Technology Strategy Board. 3. The ETI has two modes of operation—(1) modelling and analysis of the UK energy system to allow identification of key challenges and potential solutions to meeting the UK 2020 and 2050 targets at the lowest cost to the UK, and (2) investing in major engineering and technology development and demonstration projects which address these challenges with the aim of de-risking solutions—both in technology and in supply-chain development—for subsequent commercial investors. ETI invests in projects as a commercial entity, not as a grant awarding body. 4. ETI has six industry members (BP, Caterpillar, E.ON, EDF, Rolls-Royce and Shell) who offer complementary capabilities in the energy area. Their financial support (£5 million per annum each), skills, business capabilities and market access routes are made available to the Government and ETI project teams through the ETI partnership structure. HMG (through BIS) provides matching support to industry member financial contributions. 5. A major area where ETI adds significant value is in its ability to identify, select, build and manage, effective project delivery teams—teams which “bridge the gap” both in technology demonstration and in skills and capability transfer across the supply-chain. In the last three years ETI has invested over £133 million in 41 projects involving academic groups, SMEs and large industrials. The direct outputs from these projects are cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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expected to return to the project teams (not to the ETI) UK based sales of many £100’s millions over the 2020s and in most cases could also lead to significant export opportunities. The broader outcomes of the projects are expected to reduce the cost to investors and consumers of the UK energy system by £10’s billions over the coming decades. 6. By carrying out rigorous strategic analysis of future UK energy system designs options, and by then investing in targeted and controlled development and demonstration of technology, engineering and manufacturing capability which supports these system designs, the ETI partnership provides an accelerated route to market as identified in paragraph 1. The ETI manages risk through targeting of project requirements, by selection and development of the delivery team and by active decision making around quality assurance of project outputs—throughout delivery of the project 7. The key elements in the ETI model which are seen by the delivery teams to be a substantial benefit are : (a) Clear identification of well defined needs and goals which are supported by the end-customers in the market. (b) The comprehensive specification of what is needed to meet this goal and, critically, establishing the buy-in of the delivery team to both the goal and the specification. (c) Providing long-term visibility and commitment of sufficient investment funding to allow a research team visibility of a complete pathway to commercialisation (an “end-to-end” strategic approach which has been viewed in a 2010 NAO review as a significant benefit).198 (d) Providing a mechanism to manage risk and uncertainty throughout the project by actively engaging with the delivery team to engage additional support (people, financing, technical equipment etc) when appropriate—through the life of the project. (e) Setting terms at the start of the project for returns during commercial implementation— incentivising both ETI and the delivery team to develop a strong, joint understanding of the commercialisation potential, pathway options and associated risks and mitigations. 8. The ETI model brings tangible benefit in the energy sector where projects tend to be very large (financially and technically), have long lead-times in their development (often owing to the need to ensure the long-term performance of new systems), and tend to have very long asset lives in operation such that the opportunities for major plant replacements and upgrades are limited. Whether the model is entirely appropriate for other sectors, would need to be explored. ETI are currently engaged in a dialogue around this point with the European Commission who have expressed an interest in the overall concept.

General Points 9. The ETI was set-up to specifically address the “valley of death” issue for the energy sector which, at the time, was characterised by relatively low innovation investment and a narrow focus, largely around major electricity generation powerplant requirements. With the development of the low carbon economy and the UK need to renew and diversify the energy system the ETI partnership structure was established to bring in expertise, technology and best practise from outside the core of the sector and, through leverage of both finance and technical capabilities, to incentivise the development and take-up of new systems and technologies. 10. The UK Research Councils’ investments in the academic base and the Technology Strategy Board’s investments in the industrial base provide a hugely valuable platform of innovative ideas and concepts. In the energy sector many of these are being built on by subsequent ETI support to take them through the “valley of death”. 11. The scale of finance needed to take a new technology through from concept to pre-commercial demonstration, in a “heavy engineering” sector such as energy can be anywhere from £10 million to £150 million. Final implementation at commercial scale may require new manufacturing and capital facilities which exceed these levels but which are considered to be affordable in the context of future revenue returns. 12. In addition to finance, technology development, demonstration and commercialisation will need a strong, experienced and competent delivery team. Establishing such a team is often harder than securing finance, particularly in new start-up ventures. In many cases the delivery team may not recognise initially the breadth of skills and capabilities needed since few innovation groups in academia or SMEs will have experience in making the transition from research team to development and demonstration including the need to engage successfully with the demands of marketing and production partners. There is a role for industry groups, finance investors and government bodies in assisting research teams to access adequate and appropriate skills during commercialisation. This represents a key necessity in ensuring the optimum return on any investment—private or public sector led. 13. From the point of view of major customers of innovation (eg; “big industrials”), the routes which innovators use to finance the development of their capability or business are often of less significance than the innovators success in developing their complete capability/business. In this context the financial extent of private equity investments to help fund pre-commercialisation activity in SMEs is perhaps less important than the extent to which the investors seek to ensure appropriate structural, governance and business development— 198 National Audit Office report—“Government funding for developing renewable energy technologies” 10 June 2010. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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factors which will critically impact on subsequent investments in (or with) that group by major customers. In this context encouragement of the engagement of appropriately skilled and competent Non-Executive Directors is critical.

14. The ongoing development of the Offshore Renewables “Catapult” (formerly the Technology Innovation Centre) by the Technology Strategy Board is an important part of ensuring the UK engineering, technology and science base is seen as a signiﬁcant beneﬁt to major engineering, manufacturing and product support companies who will be considering global industrial development options . The Catapult should be a key bridge between these communities. From the start of the Catapult development process the ETI committed to engage with the new entity—providing it with UK energy system strategic planning information and working with the Catapult on key development, demonstration and commercialisation projects.

15. In seeking to enhance the commercialisation of research it is essential that there is also sustained long- term support for skills and capability development at the research level and in cross-cutting commercialisation capability such as advanced manufacturing. In the energy sector the ETI has provided long-term underpinning funding for the £6.5 million Industrial Doctorate Centre in Offshore Renewables at the Universities of Edinburgh, Strathclyde and Exeter. This will deliver training which will aid in creating future leaders in both the Marine and Offshore Wind industries. Other examples of best practise in commercialisation and capability transfer include the Advanced Manufacturing Reasearch Centres initially developed by the University of Shefﬁeld and now built into a national ‘Catapult’ grouping by the Technology Strategy Board.

Context and Background on ETI

1. The ETI has two modes of operation—(1) modelling and analysis of the UK energy system to allow identiﬁcation of key challenges and potential solutions to meeting the UK 2020 and 2050 targets at the lowest cost to the UK, and (2) investing in major engineering and technology demonstration projects which address these challenges with the aim of de-risking solutions—both in technology and in supply-chain development— for subsequent commercial investors.

2. ETI has six industry members (BP, Caterpillar, E.ON, EDF, Rolls-Royce and Shell) who offer complementary capabilities in the energy area. Their ﬁnancial support (£5 million per annum each), skills, business capabilities and market access routes are made available to the Government through the ETI partnership structure. HMG (through BIS) provides matching support to industry member ﬁnancial contributions. ETI invests in projects as a commercial entity, it is not a grant awarding body.

3. ETI’s in-house strategic modelling capability has been developed with the strong involvement of the UK industrial base (not just ETI Members). The ETI capability addresses the full UK energy system and centres on ﬁrst developing robust, shared understanding of critical issues for the UK in reaching 2020 and 2050 energy targets.

4. Having identiﬁed the key engineering and technology barriers associated with achieving the 2020 and 2050 goals the ETI then establishes projects to demonstrate potential solutions to these challenges. This approach forms a key part of demonstrating the industrial capabilities needed to meet the UK’s future needs, incentivising industry by informing them of the potential business opportunities and developing the supply- chain and skills to deliver solutions for the UK.

5. To date the ETI has invested in 41 projects to beneﬁt the UK. Projects range from £20,000 to £25 million and total over £133 million. The majority of ETI projects involve a mix of SMEs, Academia and large industrial groups. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Organisations working on ETI projects - December 2011

Universities and Research SMEs Institues

ETI Members Large Corporate Organisations

6. Uniquely, the ETI’s energy system modelling focuses on identifying the lowest cost solutions to the UK and provides an assessment of the option value of key technologies in the 2050 energy system (ie answering the question “what is the cost to the UK of NOT implementing a speciﬁc technology?”). The primary modelling tool is a bespoke toolset developed by the ETI and termed “ESME”. 7. ETI modelling and ESME was used by DECC in support of its 2050 pathway work and also supported the Committee on Climate Change (CCC) development of the fourth Carbon budget proposals and the 2011 CCC Renewables Review. In addition it is currently being used by a range of academic and industrial groups to aid investment targetting. The ETI modelling systems have been successfully peer reviewed by an international review team led by Imperial College. February 2012

Written evidence submitted by The Royal Society The Royal Society welcomes the opportunity to respond to the House of Commons S&T Committee inquiry on the difficulties surrounding the commercialisation of research in the UK. This submission has been prepared in consultation with a number of Fellows of the Royal Society, and has been approved by the Treasurer and Physical Secretary on behalf of the Council of the Royal Society. 1. Scientific enquiry has always been concerned with both discovery and application. The scientific process is not a simple linear progression from the acquisition of knowledge to exploitation. In his 2011 Anniversary Address, the President of the Royal Society, Sir Paul Nurse, explained, “There is a continuum from discovery science acquiring new knowledge, through research aimed at translating scientific knowledge for application, onto subsequent innovation. This spectrum should be considered as an interactive system, with knowledge generated at different places within the continuum, influencing both upstream in the creation of new discoveries and downstream in the production of new applications” (Royal Society 2011). 2. The “commercialisation of research” cannot be isolated from the broader research enterprise. Past President of the Royal Society, George Porter FRS, spoke in 1987 of two types of research “applied and the not-yet-applied”. As the Royal Society has discussed in its report The Scientific Century (Royal Society 2010), any strategy to improve the commercialisation of research must presuppose strong financial and policy support for the research base in the UK. The Royal Society has welcomed the continued ring fence around the science budget, and has been pleased to see the capital budget being partially restored by investments in recent budgetary statements, after an initial significant decrease. However, the science budget in the UK is still facing a significant real terms decline over this spending review period to 2015. UK research is the feedstock of innovation, and to be exploited to drive economic growth that research needs appropriate and sustained investment.

What are the difﬁculties of funding the commercialisation of research, and how can they be overcome? 3. In recent years researchers have been actively encouraged to pursue and demonstrate commercial applications of their research. This has been embedded in the quality assessment exercises, both the Research Assessment Exercise, and now the Research Excellence Framework (“impact on commerce” being one of the threads of the impact section of the REF [HEFCE 2012]). The need to identify impact from publicly funded cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:06] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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research is clear, but the requirement to regularly demonstrate this impact, sometimes using crude or inappropriate metrics, has meant that UK research can be pushed into the market before it is ready to be picked up by industry, with knowledge therefore being “lost in translation” (Royal Society 2011). 4. University Knowledge and Technology Transfer Offices are tasked with supporting and encouraging academics to exploit their research. With the impetus coming from the university “supplier”, evidence gathered for a 2009 Royal Society study on innovation indicated that the absence of a clear demand-side customer or driver is suggestive of an approach in which the institution is attempting to “push” knowledge and skills towards the market—a “broadcast” approach to innovation and knowledge exchange (Royal Society 2009). Policy and metrics which encourage this ‘pushing on a string’ without addressing industry and market exploitation demand are too narrow. While university based initiatives have been successful in supporting, for example, spin out companies,199 to increase the success rate of commercialisation, the UK should consider implementing a broader range of knowledge exchange/technology transfer systems; many such examples exist in other countries. A combination of university based TTOs, which are well connected to the academic base, and more commercially oriented models, could create a more balanced market for research based innovations. 5. A noticeable gap in the UK system is the lack of corporate or national labs. The number of these has dramatically decreased in the last ~30 years, particularly compared to the situation in leading competitor countries. They provide an essential link between research and exploitation because their primary focus is set and measured in terms of commercial impact, and they have the knowledge base required to access and evaluate leading research. The Technology Strategy Board (TSB) and new Catapult Centres are useful, and the very few remaining national labs such as NPL contribute strongly, but the scale of UK Government support for such institutions is small compared to that of leading innovation focused economies such as Germany or the USA. The UK would benefit from a broader ecosystem of R&D institutions ensuring competitive exploitation. Spin-out +VC is not the only route to economic exploitation. 6. In his Anniversary address, the President spoke about “pushing the bridgeheads further out into the valley of death” (Royal Society 2011). This refers to both sides of the valley. Not only does research and knowledge need to be suitably advanced to be ready for translation, but industry and business need to be better placed to identify and capture knowledge as it crosses the bridge. There must also be a recognition that the bridges are carrying two-way traffic.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 7. Technology development is not a quick, or always controllable, process. VC fund structures are not, however, typically designed to allow for a long-term or fluid timeframe. Business angels, however, can be more ‘flexible’, and as such can provide a more sympathetic match for developing research towards commercialisation. There is some anecdotal evidence that researcher-innovators are now avoiding traditional venture capitalists, and preferring to seek investment from a range of “angel” investors, who may each invest less, but who are more adaptable, and have longer term horizons. 8. The taxation environment is a critical parameter in encouraging both “angels” and venture capitalists alike—and especially in inducing the founders of companies to take the enormous financial risks which are often necessary. The past 20 years have seen a number of beneficial tax measures in this regard, including, for example, the establishment of Venture Capital Trust and Enterprise Investment Schemes. However, the abolition of the 10% business assets capital gains tax rate in the 2009 Finance Bill almost doubled the exit tax rate for founder entrepreneurs who subsequently sell their businesses. Taxation incentives are an important factor in the passage over the ‘valley of death’; the Royal Society recommends the Government address the issue of CGT in the first instance, and investigate other ways in which taxation might be used to stimulate entrepreneurship. The incentive competition from other countries is serious. 9. There needs to be a more flexible approach to encouraging innovative ways of supporting the private innovation and exploitation sector. For example the Royal Society’s own Enterprise Fund has not been eligible for government support because it does not fit a “standard model” of venture capital or business angel support, with, for example, fixed (short) timescales for investment and exit. 10. In the absence of many major corporate labs in the UK and other long-term technology “incubators”, ways to support the maturing of technology for longer are needed. Government procurement could help to do this, as would a broader Small Business Research Initiative (SBRI) in the style of the US Small Business Innovation Research system (SBIR), and tax breaks for longer-term and early investment. The TSB Catapult Centres may help in certain narrowly-defined areas, but it is too early to assess their impact.

Royal Society Activities in the Area of Commercialisation 11. The Royal Society is a Fellowship of 1,400 scientists based around the world. These Fellows and Foreign Members are all world class researchers, and many are also successful entrepreneurs and innovators. 199 In 2007–08, university spin-out companies employed nearly 14,000 people and had a combined turnover of £1.1 billion (BIS 2008); in the ﬁrst decade of the 2000s, university bioscience departments generated over 200 spin-out companies (BBSRC 2009). cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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12. Many Fellows of the Royal Society have direct experience of crossing the “valley of death”. Fellows have founded a number of successful British companies. Examples include ApaTech, Biogen, CAT, Domantis, Oxford Instruments, Plastic Logic, Renishaw and Ubisense. These companies have had a multi-billion impact on the UK economy, through investment and market capitalisation. 13. In March 2010 the Royal Society published a report on the vital contribution of science and research to the nation’s wealth. The Scientific Century: securing our future prosperity (Royal Society 2010) emphasised the need to place science and innovation at the heart of a long-term strategy for economic growth. The report highlights the successes of policies in the early 2000s to generate value from investment in research—for example the increase between 2000 and 2008 of patents granted to UK universities (136%) and consultancy income (222%)—but calls for more to be done to improve knowledge exchange between universities, researchers and business. 14. The Royal Society Enterprise Fund (RSEF) was set up by the Royal Society in 2008 to make equity investments in early-stage companies based on outstanding UK research. To date the Royal Society has raised over £7 million in philanthropic donations for the RSEF and invested in five businesses, backing them with finance and other support. Encouraged by the early reaction to this initiative intended to help bridge the ‘valley of death’, the Society is looking to expand this activity.

References Royal Society (2009). Hidden wealth: The contribution of science to service sector innovation. The Royal Society, London, UK. Royal Society (2010). The Scientiﬁc Century: Securing our future prosperity. The Royal Society, London, UK. Royal Society (2011). Anniversary Address: Dr Paul Nurse PRS, Wednesday 30 November 2011. The Royal Society, London, UK. HEFCE (2012). Panel criteria and working methods: REF 2014. BIS, HEFCE, Scottish Funding Council, HEFCW and Department of Learning (2008). Higher Education— Business and Community Interaction Survey 2007–08. BBSRC (2009). Economic Impact Baseline 2009 Update. BBSRC, Swindon, UK. February 2012

Written evidence submitted by Golden Rice I have just read in Prospect magazine that you are seeking explanations concerning the barriers to commercialisation of a scientific idea, whether the Governments policies are a help of a hindrance and whether we need more venture capitalists. Prospect alludes to poor delivery in Britain of commercial benefits from Watson & Crick’s DNA elucidation in 1954. I work in the field of crop genetic engineering, or rather the promotion of the adoption of a single product of crop genetic engineering. The experience of myself and co-workers I think will cast some answering light on the questions you raise. Last year I asked to contribute to a regular blog about commercial secrets of crop biotechnology exploitation by the US office of the scientific journal Nature Biotechnology. So far I have not done so, despite all current content being about medical biotechnology, because the deep suspicion—without scientific justification— surrounding “GMO” crops means that even the most deserving projects can get nowhere towards adoption. It is this suspicion which needs to be overcome. Britain’s policies on removing suspicion are leading within European countries, but are still insufficient. In the last 1O years I have seen excellent British crop biotechnologists put out of work as their commercial laboratories moved to the USA. More recently, I have seen the same thing happen with a major crop biotech company in Germany. This is due to unwarranted and unscientific suspicion of the genetic engineering technology. Genetic engineering of crops is not a panacea for all, but a powerful tool in the crop-breeders toolbox. It can make possible crop traits which cannot be delivered by conventional—and incidentally more random—seed breeding techniques. The suspicion about the technology is also decreasing dramatically the potential for any UK based revenue growth from crop biotechnology. Germany is probably an example of the direction Britain is going. A German professor colleague—co-inventor of the technology I work with—works in a German state where the new “Green” party state government positively says it will support no genetic modification work on crops. No postgraduate students want to work on the crop biotechnology, as they see no future in it. No research funding is possible for any proposal which includes crop genetic modification. It is a ridiculous situation that the same genetic sciences and genetic engineering technology is very widely used in the food processing industry (bread and beer and food processing enzymes for example) and medicine (human insulin for diabetes control, and a plethora of new drugs are examples) cannot effectively be harnessed cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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by small start ups of the private sector when applied in crops. It is not funding which is holding back the science, it is ultimately suspicion and untimely and unscientiﬁc regulatory requirements driven by societies response to that suspicion, which holds it back. These requirements create a barrier to entry for any but the wealthiest and most determined companies.

The suspicion of genetic engineering of crops is very widespread. Britain can cheaply lead in overcoming it globally as well as in Britain, in a way which I shall illustrate. Overcoming it on a global scale may yet, when subsequently combined with Britain’s intellectual, entrepreneurial and trading capabilities, open up a new seam of revenue for individuals and related tax income in Britain.

Let me give you examples of this suspicion. In the same Prospect magazine issue where I read about your current quest, I also read that to raise Britain’s ﬁve-year-post-ﬁrst-diagnosis cancer survival rates to the European average would have the life saving effect equivalent to preventing one full jumbo jet crashing every other day at Heathrow Airport. The technology I am involved with has the capacity, conservatively estimated, to save the equivalent of six jumbo jets crashing every day. Moreover, the product exists. And further there is no charge for the technology—it is a free donation from its inventors with whom I work.

(Currently I am an unpaid volunteer. Neither myself nor the inventors have any ﬁnancial incentive from adoption of the product, nor commercial linkages. Apart from funding since late last year from the Gates Foundation only in Philippines and Bangladesh, there is zero other funding currently.)

Let me give you some examples of the prejudice we encounter. 1. Laos is an extremely poor country where our product can significantly benefit the people. The UN’s World Food Programme recognises the problem which needs to be addressed. I visited their offices in Vientiane in September last year, for a prearranged meeting. One arrival I was told “As a UN agency, of course we have nothing to do with GMO crops”. This stance was rapidly changed when challenged. But the attitude is clear. 2. Sightsavers is the “trading name” of the Royal Commonwealth Society for the Blind. They are rightly proud of the work they fund to perform cataract operations, and also distributing donated drugs to prevent blindness caused by a parasite in West Africa.

Recently we asked if they would be interested to spend £155,000 per annum of their £32,000,000 annual income (of which incidentally £3.6 million comes from governments including UK Government) for their work to facilitate adoption of a sight saving project with our product, where the technology will be free of any charge, and existing local public sector institutions need only be catalysed to work together for success, and where the product will prevent the leading cause of blindness in children according to the World Health Organisation. They would not discuss the proposal.

3. I have been invited to speak to a The United Nations Conference on Trade and Development (UNCTAD) will be holding its XIII quadrennial conference in Doha, Qatar from 21 to 26 April 2012. UNCTAD is a subsidiary body of the General Assembly of the United Nations whose mandate is to promote the development- friendly integration of countries into the global economy through trade, finance, investment and technology issues. In particular at the technology and innovation day that will be held on 24 April 2012. Our project is absolutely about innovation and development. The confirmation of the invitation has been slow in arriving. This week I was informed by the UN organisers: “To be frank with you, after my first email some of our partners started to have doubts about some aspects of the programme of the event, particularly concerning biotechnology. That is the issue that needs to be solved now.”

With respect to the barrier to overcoming prejudice against genetically engineered crops, a successful example is needed with high profile, with no “commercial interest” baggage, and which clearly benefits people. Adoption of our product Golden Rice, would provide the best example of that. Golden Rice is a biofortified crop to combat Vitamin A deficiency. We have human data showing that 40g per day (a Petri dish full) will prevent death and blindness. Even small children in rice consuming societies consume 300g per day, and overdoing is not possible.) And Golden Rice exists. What is needed is adoption. The science has been done— and incidentally the key breakthrough science to the initial proof of concept work was done by British scientists in Britain. And I—who have been working intimately with the inventors for the past 12 years—am also British.

Myanmar is one country where we have contacts who want to proceed with Golden Rice, and the UK and other governments want to engage and encourage the direction of recent policy changes there. Laos is another. There are many others. All that is needed is a tiny amount of funding to allow the catalysis of existing public sector institutions. February 2012 cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Written evidence submitted by SETsquared Partnership The SETsquared Partnership brings together the enterprise activities at the Universities of Bath, Bristol, Exeter, Southampton and Surrey which lend themselves to co-operation and collaboration. It has three major strands of activity: — Student enterprise: raising awareness of enterprise amongst under-graduates and post-graduates. — Business incubation for start-up technology businesses. — Engaging with industry to inform the research agenda. The SETsquared Business Acceleration Centres at each university perform the role of business incubators, providing support to high- tech, high-growth potential early-stage companies. Its Centres currently support around 250 companies, some of which are spin-outs from the Universities but most are from the wider business community. They provide serviced ofﬁce space but more importantly, access to experienced entrepreneurs, sector specialists and routes to funding, legal and IP advice. They ensure ideas either “fail fast” with a controlled closure, or are accelerated in a highly supportive, commercial environment. The investment data for such centres demonstrates that the companies are well prepared and attractive to the investor community. Across the Partnership £750 million of investment has been raised by companies using the centres with 88% of companies still trading after three years.

1. What are the difficulties of funding the commercialisation of research, and how can they be overcome? 1.1 The commercialisation of research can take the form of new business creation (start-ups), through technology transfer mechanisms (such as patents and licensing) or by means of researchers taking their expertise into businesses who exploit it. 1.2 Start-up businesses need (and often a lack) access to a funding escalator providing proof- of-concept funding, through seed funding to later stage investment. Proof-of-concept funding to demonstrate early stage technology has commercial value is particularly important. It is often used to fund design, prototyping and technology demonstrators in cross-disciplinary teams which straddle traditional Research Council boundaries. 1.3 Many Universities in England use HEIF funding for Proof of Concept to move projects from the point Research Council funding runs out to the point where external investors might take up the investment. Consideration should be given to expanding this type of investment. 1.4 The Research Councils follow on funds have proved valuable to offer next level funding for projects. BBSRC have a two-stage process with funds often being co-invested with University HEIF Proof of Concept funds informed by an industry-led panel. MRC and other RCs have experimented with devolving greater investment decision-making to the Universities which has resulting in quicker decisions being taken closer to the innovation. 1.5 Some Research Councils encourage academics to include an element within grant proposals to fund “Pathway to Impact” activity. It is SETsquared’s opinion that whilst valuable, the way in which MRC funds this objective is particularly targeted and effective. 1.6 There is a recognised need to bring key industry players and investors into the academic arena at an early stage. Stanford regularly holds academic investor forums where academics expose early stage “on the lab bench” ideas to venture capitalists and entrepreneurs, allowing them to changing their plans before their grant application is written. The Research Councils provide some money for sandpit type events but consideration should be given to funding aspects of the US model more widely, perhaps in conjunction with the KTNs. 1.7 The SMART (formerly Grand for R&D) is an important component in the escalator often leading to the next stage of TSB or EU collaborative research funding. TSB research has shown that collaborative projects including Universities have a higher success rate than those without. 1.8 The recent changes to R&D tax credits for large and small companies are welcomed but efforts need to be made to encourage more companies to take advantage of them. 1.9 Tax changes announced in the 2011 Autumn Statement to incentivise individuals to invest in start-up/ small companies are most welcome. Please see comments in response to Question 6. 1.10 Whilst UK universities are successful in securing EU Framework progamme funds, British businesses are less so. Efforts must be made to ensure that the UK is able to take full advantage of the opportunities afforded by Horizon 2020 and future rounds of European Regional Development Funding. 1.11 David Willetts, Minister of State for Universities and Science, has identified200 how US firms benefit from access to Federal and State funds to help them fund their research and develop their businesses to a point 200 Speech of 4 January 2012. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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where companies are signiﬁcantly more attractive to VC, angel and other form of funding. The UK should consider adopting aspects of this model. 1.12 Exploiting IP effectively is a challenge. The Universities of Bristol, Glasgow and Kings have developed “Easy Access IP” where simple quick and free license agreements are made available in return for a commitment to “stay in touch”. The South East IP web site has just been launched which seeks to aggregate valuable IP generated by the University of Surrey and NPL amongst others. Both initiatives seek to address the perception that dealing with universities on IP issues is expensive and difﬁcult. 1.13 As important as funding, there is a need for entrepreneurial researchers to have access to mentors, professional advisers, management expertise and ultimately to paying customers. Traditional UK university efforts to commercialise research are highly risk-averse with institutions only pushing a small number of almost guaranteed opportunities leaving many promising areas of research to seek alternative routes to commercialisation. The development of a constellation of small, large and entrepreneurial investors and mentors around innovation centres- such as those across the SETsquared Partnership- can help address this. 1.14 Research can be exploited when post-graduates and post-doctorates collaborate with, or are employed by, business. Increasing entrepreneurship and business awareness amongst these groups is an important goal for the UK. Programmes to encourage early career academics to spend time in industry—sponsored by the companies but incentivised by modest amounts of public funds—could help encourage academics regard this as an important part of their career development.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 2.1 Life-sciences research has been traditionally difficult to commercialise but it has also provided some of the largest commercial returns in UK corporate history. The cost of developing and securing approval for new drugs is so great that, in some cases, companies cannot recover their investment within the duration of the patent. 2.2 The long timelines between early stage research and commercial exploitation, and the very high risk- return ratios, mean that direct investment into this space is drying up. 2.3 Many large pharmaceutical companies are reducing their in-house research capacity in favour of sourcing external innovation. They are increasingly looking to smaller biotech companies to discover and develop opportunities before capturing them at a later stage. 2.4 The recent Government announcement of the £180m MRC/TSB Catalyst Fund is to be welcomed but is a modest sum in relation to the importance of this sector to the UK and the global competition for such high value added activities. 2.5 Commercialising research in sectors with high levels of regulation such as healthcare, aviation and safety-critical systems is time consuming and expensive. Whilst this is a major barrier to entry, it does mean that technologies approved, for example, on a new model of aircraft could be used in production for 20 years, and generate sales in the after-market for a further 20 to 30 years thereafter.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 3.1 There are many examples of technologies developed in the UK but fully exploited overseas such as MRI scanners, carbon fibre nanotubes, and much of the technology used in mobile communications. 3.2 UK universities, unlike their US counterparts, do not have a requirement to target their licensing at domestic companies. Whilst data is not recorded, it is believed the majority of license agreements signed by UK Universities are with companies and organisations outside of the UK. This may result in some further R& D in the UK but future profits (and jobs) arising from commercialisation will be generated overseas. 3.3 The UK has progressively lost many large indigenous companies with critical mass in important areas of the global economy. As a result, many successful spin-out/start-up companies are eventually acquired by companies outside of the UK. 3.4 The SETsquared Business Acceleration Centre at the University of Bristol has incubated one such company which is now Belgian-owned (because of sources of capital) and many move its headquarters to the US for reasons of market access. 3.5 Another, at the University of Exeter’s SETsquared Centre, has just raised over £2 million of (US) VC funding and has plans to create around 80 jobs in the next 18 months. It is already clear that there will be significant pressure for this company to relocate to the US when it seeks to raise the next round of funding. Whilst this is a threat, there is also an opportunity for the incubators to engage with wealthy and immensely well connected US investors, as well as the best international designers and developers being recruited by the company. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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3.6 One of the biggest problems facing the UK economy is its relative inability to develop and retain mid- sized high-growth (“gazelle”) companies. The recent CBI’s Future Champions report addresses this issue and is a useful reference document which draws some interesting comparisons between the UK and Germany and its powerful “mittelstand” companies.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 4.1 TSB’s role as an industry-led strategic body investing in the UK’s future wealth generating activities is of vital national importance. Whilst its funding has been protected from public funding cuts its budget is modest relative to the scale of the task facing the UK which invests around 1.8% of GDP in R&D compared to our major competitors who are investing between 2.5% and 4%. 4.2 TSB has been successful in providing financial support (as well as technical and commercial due diligence) to projects such as Next Generation Composite Wing and the Environmentally Friendly Engine projects which focused almost £200m of private and public funds on large projects of profound significance to the UK-based prime contractors and their supply chains. It is hoped this has positioned the UK to secure a significant share of the next generation single- aisle aircraft market which could be worth c. $1 trillion over a 20 year period. 4.3 The iComposites competition was a good example of a focused, well-funded project which brought a number of large, medium and small companies together to address major technical challenges. It attracted significant private sector investment and has forged long term collaboration between companies in different sectors. 4.4 As mentioned, SMART/Grant for R&D is a valuable product. 4.5 Knowledge Transfer Partnership (KTP) is another excellent means of commercialising university research although recent moves to change eligibility rules is likely to preclude early-stage companies from participating. 4.6 Knowledge Transfer Networks provide a valuable means of keeping communities of researchers and business informed of important technical and commercial developments.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 5.1 The Catapult initiative is a positive response to address the expense and technical difﬁculty of exploiting commercially promising research. The long-term funding for these centres will provide access to advanced, industrial scale equipment and a pool of skills no one company could afford. 5.2 It is realistic to believe that Catapults will provide a focal point for universities and industry to work collaboratively to address Technology Readiness Levels 4–6 (the valley of death). It is hoped that they will also help identify the high-level skills needed to ensure the UK can fully exploit these technologies. 5.3 The ring-fencing of the University research budget in the face of stringent budget cuts was welcomed and recognition of the role HEIs play in UK innovation agenda. Notwithstanding the current economic challenges, consideration should be given to setting a goal to increase the percentage of GDP invested in university research and exploitation. 5.4 HEFCE continues to invest in efforts to transfer the knowledge developed in universities to those individuals or businesses able to exploit it. The SETsquared Partnership has invested some of these funds in ﬁve high quality incubators which have helped hundreds of companies to grow and to raise £750 million, to support their Technology Transfer (IP and licensing) activities, and to established a programme to increase the awareness of enterprise issues amongst those studying or undertaking research in Universities.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 6.1 Yes it should. The Autumn Statement announcements relating to tax incentives for investors in small companies are positive. The role of informed serial entrepreneur/angel investors is vitally important in the creation of new businesses and tax incentives such as EIS and the new SEIS (sp) are particularly important. 6.2 Consideration should be given to additional tax incentives to further reward those who invest at the earliest stages of a business to fully reﬂect the risks taken. 6.3 SETsquared strongly believes there is a need for state investment or co-investment in the valley of death. There are a number of mechanisms that can be applied relatively inexpensively to bridge this gap, some of which were successful in the past. 6.4 The University Challenge Seed fund (1999–2000) provided early stage seed funding to spin-outs provided by DTI and the Universities themselves. Work by the University of Cambridge showed that the £60 million investment in over 200 businesses leveraged a further seven-fold of investment funding (£434 million). cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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6.5 Regional Venture Capital Funds and Enterprise Capital Funds have also been valuable as a form of Government funding matched against private capital in an attempt to remove the disadvantage faced by investors when considering early stage vs. later stage vehicles for their investments.

Declaration of Interest SETsquared is a Partnership funded by the Universities of Bath, Bristol, Exeter, Southampton and Surrey who are in turn receive funding from amongst others, Higher Education Funding Council for England, the Research Councils and indirectly, from the Technology Strategy Board referenced in this submission. February 2012

Written evidence submitted by BMT Group Ltd Introduction This submission is from BMT Group Ltd (BMT), a leading, independent, engineering, science & technology consultancy, which is a member of the Association of Independent Research and Technology Organisations (AIRTO). We are aware of AIRTO’s written submission to your inquiry, so we have chosen, therefore, to concentrate our individual response to the R&D Tax Credit system that exists in the UK and proposals thereto.

Background BMT (formerly British Maritime Technology Ltd) was created by the privatisation and merger of the National Maritime Institute with the British Shipbuilding Research Association in 1985. The group has been on a journey of commercialisation itself, but retains a strong core activity in research and development, largely paid for by our customers. The enhancements which were made by Government to support growth in innovation following consultation in 2005 have proved highly successful to companies such as BMT, and we understand that the R&D Tax Credit system represents the majority of the BIS annual budget in the area of innovation. BMT is a beneﬁciary in the UK of the R&D Tax Credit system and the tax offset of our qualifying research and development activities is most welcome each year. In addition, we participate in the Research Framework Programmes funded by the European Commission. Turning to the key questions posed, we would respond as follows:

1. What are the difficulties of funding the commercialisation of research and how can they be overcome? 1.1 Research covers many parts of the eventual development of a product or service and can, therefore, take a very long time from initial ideation through to concept and then through to proof of concept. The proving of a piece of technology, or service line, needs to meet various criteria and the tests within the UK Accounting Standards provide a helpful guide, namely: (a) there needs to be a clearly defined piece of research being commercialised; (b) the related expenditure is separately identifiable; (c) the outcome of such a project has been assessed with reasonable certainty as to; (i) its technical feasibility, and (ii) its ultimate commercial viability considered in the light of factors such as likely market conditions (including competing products or services), public opinion, consumer and environmental legislation; (d) the aggregate of the deferred development costs, any further development costs, and related production, selling and administration costs is reasonably expected to be exceeded by related future sales or other revenues; and (e) adequate resources exist, or are reasonably expected to be available, to enable the project to be completed and to provide any consequential increases in working capital. 1.2 There are usually too many uncertainties surrounding the successful commercialisation of pure research because of its immaturity or the lack of proof of concept, which prevents attracting funding. Incentives are a good way to overcome some of the difficulties and these should target key stages in the development life cycle.

2. Are there any specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 2.1 BMT is involved in a number of industries and in applying science and engineering technological solutions for its clients. It majors in the maritime world, which will typically involve large capital items such as ships, offshore structures, coastline infrastructure, warships, subsea equipment and the like. In view of the cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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significant sums involved, it is often difficult to procure funding of ideas and research, although joint industry collaboration is more common in certain industries, such as in the oil & gas industry. Attached at Appendices I and II are examples in the following relevant markets: — Offshore renewable energy. — Maritime transport. 2.2 The common difficulties and common solutions across sectors are driven by the perceived risks and differing objectives from providers of finance to those pushing technological change. Application of best practice risk management will help the process.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 3.1 We have, in the past, known UK-based research to have been transferred outside the UK for commercialisation in the area of telecommunications. This involved a “linear modulation technology” and narrow bandwidth to exploit the available spectrum in the United States. The spectrum in the UK was congested and there was not a sufﬁcient scale of market to exploit the technology in the UK. 3.2 A second example is in the construction industry of an innovative electrical heating and cooling system combined with metal or fabricated skirting boards and radiators. The conservative nature of the construction industry means that there is typically a ten to twenty year lead-in, until a product is accepted by the leading manufacturers. The product was taken up in Eastern Europe, where the industry was less resistant to change. 3.3 BMT’s concerns following the general ﬁnancial crisis centre around a reducing level of risk- taking with banks now wanting unreasonable levels of comfort before lending money, in turn leading to the suppression rather than the exploitation of innovation and subsequent drive of commercialisation overseas.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 4.1 Organisational behaviour changes with stimuli such as the R&D Tax Credit, which will feature in any cost beneﬁt analysis or investment appraisal. Often, whilst not a core element of research and commercialisation, the tax credit calculation will tip the scales in favour of a project and, as a result, makes all the difference. It is a signiﬁcant factor in our investment appraisals. 4.2 We have seen recent examples of the innovation R&D Tax Credit stimulating new ideas and developing ideas further, such as our Turbine Access System for vessels (TAS system), the details of which are at Appendix I.201

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 5.1 We welcome the signiﬁcant improvement in the R&D Tax Credit being paid above the line, rather than being used as a corporation tax offset for large companies. 5.2 In respect of the R&D Tax Credits the impact is likely to be relatively small, but, to increase its impact, we propose modifying the percentage given in the following areas: (a) increasing the level of inherent subsidy for large companies from 130% to 140% from April 2013 speciﬁcally in the Government’s strategic target areas—for example in renewable energy—for a period of, say, three years; and (b) increasing capital allowances for the Government’s strategic target areas. In order to help the large investment necessary in these areas a better capital allowance regime would complement the R&D Tax Credits to assist commercialisation.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 6.1 The UK must encourage more private equity investment into science and engineering sectors. This can be done in two ways, by increasing the venturing reliefs that are currently available and by giving a two to three-year time frame for added incentives in order to stimulate capital release out of large savings seeking better returns. Secondly, there should be the equivalent of a science and engineering bank established by the Government to provide the necessary capital in this most important area of our economy, or perhaps give the management of research loan funding to a bank run on behalf of its key stakeholders and the community on a co-operative basis. 201 Not printed. See www.bmt.org/?/51/40/2870 and www.youtube.com/watch?v=LZC9QDqkk88 cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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7. What other types of investment or support should the Government develop? 7.1 We recognise the limitations on the money the Government has to spend. We believe, in its attempt to bridge the valley of death, the Government could do more in its strategies for education, as well as its efforts in the commercialisation of research. However, the approach outlined in the Government’s “Innovation & Research Strategy for Growth” published in December 2011 is very sound and will help the UK to maintain its recognition as a leader in the ﬁeld of innovation. February 2012

Written evidence submitted by Campaign for Science & Engineering (CaSE) 1. The Campaign for Science & Engineering (CaSE) is a membership organisation aiming to improve the scientiﬁc and engineering health of the UK. CaSE works to ensure that science and engineering are high on the political and media agenda, and that the UK has world-leading research and education, skilled and responsible scientists and engineers, and successful innovative business. It is funded by around 750 individual members and 100 organisations including industries, universities, learned and professional organisations, and research charities.

What are the difficulties of funding the commercialisation of research, and how can they be overcome? 2. The strength of the UK’s research base is well known. With just 1% of the world’s population, we produce around a 10th of the world’s research publications including 14% of the research that has the highest impact202. However, the UK’s ability to commercialise that research—bridging the “valley of death”—has long been a source of concern. 3. Many of the current support mechanisms for commercialisation aim to link universities and industry (eg University Technology Transfer Offices), “pushing” university research into the private sector. Small to medium-sized enterprises (SMEs) are considered to be important recipients for this research. However, due to their size and levels of resource there are limitations on the level of commercialisation that SMEs are capable of. The Association of the British Pharmaceutical Industry estimates that it costs about £1 billion and takes between 12 and 15 years to bring a new medicine to market. In addition, associated failure rates are high, out of 250,000 new compounds initially investigated, only five are likely to make it through the clinical trial process to market203. A well-supported and diverse industrial sector should be the goal, comprised of firms of all different sizes in recognition of the fact that one size doesn’t fit all. 4. One of the reasons that the valley of death exists is the high risk, high cost, and often long timescales associated with the commercialisation of research. As it is the UK as a whole that reaps both economic and societal benefits from the successful commercialisation of research, it can be argued that it is appropriate for the Government to absorb some of this early stage risk in the absence of sufficient appetite or ability from the private sector. However, the absorption of this risk should come with its own rewards and it may be appropriate for the state to try and recoup some of the benefits more directly, in addition to the indirect benefit system (taxation) currently used. 5. In addition to financial capital, human capital also plays an important role in the commercialisation of research. Venture capitalists and angel investors benefit from academic research groups possessing business/ industry experience. At present, the Research Excellence Framework204 incentivises the opposite, discouraging universities from hiring staff with backgrounds in industry, due to gaps in (or an absence of) publication records.

What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 6. At a recent NESTA organised event held under the Chatham House rule, one attendee remarked that they had chosen to merge their UK-based pharmaceutical company with a US company so that they could be listed on NASDAQ. The attendee cited a lack of appetite for investing in biotechnology (and research and development more generally) stock from the London markets as the rationale. 7. The commercialisation of scientific and engineering research is becoming an increasingly global endeavour. If manufacturing is taken as part of the commercialisation process (and arguably it should be, successful commercialisation relies on affordable manufacturing), then the decision taken by Dyson to move its manufacturing operations to the Far East, provide a useful example. At the time of the announcement, company founder James Dyson offered the following as an explanation, “Increasingly in the past two to three years our suppliers are Far East based and not over here. And our markets are there too.”205 202 The Royal Society “The Scientific Century: Securing our future prosperity” RS Policy document 02/10 March 2010 royalsociety.org/policy/publications/2010/scientific-century/ 203 The Associated of the British Pharmaceutical Industry “Why we should care about where clinical trials are done” 9 June 2011 www.abpi.org.uk/our-work/news/2011/Pages/090611.aspx 204 Higher Education Funding Council for England “Research Excellence Framework” www.hefce.ac.uk/research/ref/ 205 BBC News “Dyson to move to Far East” 5 February 2002 news.bbc.co.uk/1/hi/business/1801909.stm cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 8. As many of the Technology Strategy Board’s (TSB) initiatives are fairly recent, and commercialisation is a long-term process, there is little evidence to date of their effectiveness or ineffectiveness. NESTA put together an early review of the SBRI scheme administered by the TSB, and suggested data that should be captured in order to assess the effectiveness of the scheme in future. CaSE supports the rigorous independent evaluation of TSB initiatives and in particular levels of return on investments. The work done by independent consultancy PACEC, which showed that collaborative R&D projects which had been completed by the end of 2009 estimated a gross value added of £6.71 per £1 of government funding, has been useful in showing the impact of the TSB.206 9. In addition to the importance of monitoring the impacts of TBS initiatives, there is a wider need to look systematically at how the UK’s science and innovation system is changing and how it can be strengthened. The “Science of Science and Innovation Policy” (SCiSIP) program in the US has to date supported over ninety projects to improve the models, analytical frameworks and metrics that are applied in science policy decision making. CaSE suggests the UK would beneﬁt greatly from a similar initiative.

What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 10. The development of Catapults, inspired by the success of Germany’s Fraunhofers, is welcomed. However, the comparatively low levels of funding of this initiative will inevitably limit its success. The Catapult centres, of which seven are expected, have been allocated a total of £200 million over the next four years, with the Cell Therapy Catapult set to receive £50 million.207 Should the remaining £150 million be allocated equally, the High Value Manufacturing Catapult can expect £6.25 million per year for the next four years. This figure is diluted further when considering the seven institutions which comprise the Catapult. If funding were to be divided equally again, each institution could expect just under £900,000 per year. In comparison, the Fraunhofer Institute for Manufacturing Technology and Advanced Materials (which comprises four institutions) reported a total operating budget of just under €30 million in 2010–11.208 Although our calculations are simplistic, they still illustrate the gulf in funding. 11. CaSE has welcomed the announcement in December’s Innovation and Research Strategy that Smart awards would return, funded at the level of £75 million over three years.209 By encouraging SMEs to engage in the strategically important areas of science, engineering and technology, this could increase the compatibility of research undertaken in universities and SMEs. CaSE also welcomes the idea of competitions aligned with priority investment areas using the Smart schemes and hopes that an inducement prize model will be used to incentivise innovation (see paragraph 14). 12. The Small Business Research Initiative (SBRI) aims to improve the success of small R&D-based businesses in obtaining contracts from government bodies. Although based on the US Small Business Innovation Research (SBIR) programme system, the maximum size of contracts covered by the supply2gov database has been £100,000, compared with a typical size of $850,000 under the SBIR.210 An evaluation by the Richard Report in 2006 found that despite the scheme’s relaunch in 2004, hardly any of the projects funded involved any R&D.211 CaSE welcomes the 2011 Plan for Growth212 commitment of £20 million, but suggests that going forward the Government sets a new target rate for government R&D contracts per annum going to SMEs (previously this was 2.5%)213 and where possible, the program focuses on firms that can prove they will spend on innovation. The SBIR must be recognised by all government departments as a primary tool to increase procurement efficiency. 13. CaSE welcomed the announcement of forthcoming reforms to the R&D tax credit schemes announced in the Autumn Statement. Many of the reforms, such as a move to an “above the line” tax credit and payment of unused credit (if the company is loss making) to the company were included in CaSE’s response214 to the HM Treasury consultation on R&D tax credits. All of our suggestions focused on ensuring that the benefits of the R&D tax credit are seen by those making decisions on R&D spend (not just a company’s tax department) so they are encouraged to undertake greater levels of R&D in future. The effect of these tax credits must be 206 Technology Strategy Board “Evaluation of collaborative R&D published” 29 September 2011 www.innovateuk.org/content/news/evaluation-of-collaborative-rd-published.ashx 207 Department for Business Innovation and Skills “Strategy for UK Life Sciences” 5 December 2011 www.bis.gov.uk/assets/biscore/innovation/docs/s/11–1429-strategy-for-uk-life-sciences.pdf 208 Fraunhofer Institute for Manufacturing Technology and Advanced Materials IFAM “Annual Report 2010/2011” www.ifam.fraunhofer.de/jahresberichte/jb10/jb2010_en.pdf 209 Technology Strategy Board “Smart” www.innovateuk.org/deliveringinnovation/smart.ashx 210 M. Mazzucato “The Entreprenuerial State” DEMOS www.demos.co.uk/publications/theentrepreneurialstate 211 Doug Richard “Small Business and Government: The Richard report” 2008 www.bl.uk/bipc/pdfs/richardreport2008.pdf 212 Department for Business, Innovation and Skills “The Plan for Growth” http://cdn.hm-treasury.gov.uk/2011budget_growth.pdf 213 NESTA “Buying Power? Is the Small Business Research Initiaitve for procuring R&D driving innovation in the UK?”June 2010 www.nesta.org.uk/library/documents/Buying_Power_150610.pdf 214 Campaign for Science and Engineering “CaSE response to R&D Tax Credits Consultation” 2 September 2011 http://sciencecampaign.org.uk/?p=7034. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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monitored to ensure they result in increased levels of R&D in addition to contributing to the UK’s attractive innovation ecosystem. 14. CaSE welcomes the announcement in the Innovation and Research Strategy of a new prize fund of £250,000 to be coordinated by NESTA.215 In contrast to prizes such as the Queen Elizabeth II Engineering Prize, it’s possible that inducement prizes will be more effective in driving innovation in the short term. As an example, the Ansari X Prize in the US offered a prize of $10 million for the first non government organisation to launch a reusable manned spacecraft into space. This led to approximately $100 million in R&D investment, and laid the basis for the commercialisation of civilian space flights.216 The amount of prize money offered is crucial and must match the social value of intended goal, in order to avoid inadequate incentives or inefficient duplications of investment.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 15. In 2009, then Science and Innovation Minister Lord Drayson announced a UK Innovation Investment Fund of a £150 million with a view to this being built up to £1 billion over 10 years through match funding from private investors for investments in clean technology, bioscience and advanced manufacturing companies.217 Although this fund fell short of its “aspirational” £1 billion when it closed in the summer of 2011, it did leverage an additional £175 million from private sector investors which is currently being invested. Re-using this model of state funds as seed capital in a private equity fund structure may be one way to leverage private equity investment. CaSE suggests that the return on investment of this scheme is monitored.

What other types of investment or support should the Government develop? 16. Announced in the December Pre-Budget Report, the Patent Box (which taxes income from patents at a reduced rate of corporation tax), will take effect from April 2013. Despite support for the initiative from large companies (which hold the majority of patents), it has also received criticism. The patent box is a costly initiative; the Treasury estimated in the June 2010 budget that a Patent Box would eventually cost £1.1 billion a year.218 In modelling the potential effects of the patent box, the Institute for Fiscal Studies found that although the patent box would increase the UK’s share of patent holdings it was unlikely to result in the amount of real activity to accompany newly created patent income in order to outweigh the loss in revenue.219 17. The Green Investment Bank, currently operating as UK Green Investments, is an excellent opportunity to directly address the valley of death by providing gap finance and long-term patient capital to allow innovative companies to attract private finance. However, the level of financing needs to be greatly increased if it is to operate successfully as a bank as opposed to just a funding body. The current budget of £100 million in the first instance followed by an additional £100 million next year is likely to be insufficient. A further issue arises if the bank is classified as being within the public sector, whereby any borrowing it undertakes would appear to work against measures to reduce the deficit on the Government’s balance sheet. As the Government’s primary objective is reducing the deficit, this may explain why the Government appears reluctant to include the Green Investment Bank on the balance sheet. However, the ability of the bank to both borrow and lend is crucial if it is to operate commercially and attract private sector investors, rather than simply acting as a relatively small un-leveraged fund. CaSE supports the recommendation from the House of Commons Environmental Audit Committee report on the Green Investment Bank that, “the Department for Business, Innovation and Skills should raise with the Treasury the scope for a ‘temporary and extraordinary’ exclusion of a public sector Green Investment Bank from the strictures of the Government’s fiscal controls”.220 18. A radical and successful funding model currently employed in the US exists in the form of the Defence Advanced Research Projects Agency (DARPA). It has an annual budget of $3.2 billion dollars and relies on highly skilled programme managers as opposed to peer review for its funding decisions. The focus on radical innovation and high-risk investment allows it move from fundamental technological advances to prototyping. DARPA output has included the global positioning system (GPS), stealth aircraft and the precursor to the internet. DARPA also played an important part in the formation of Silicon Valley. By funding the establishment of new computer science departments in the 1960s, they greatly increased the numbers of researchers with expertise in this area, accelerating the rate of technological change. In order to accelerate computer chip fabrication specifically, they funded the opening up of a lab at the University of Southern California. Anyone who possessed a superior design for a new microchip could have the chips fabricated there and it was during 215 Department for Business, Innovation and Skills “Innovation and Research Strategy for Growth” December 2011 www.bis.gov.uk/ assets/biscore/innovation/docs/i/11–1387-innovation-and-research-strategy-for- growth.pdf 216 Luciano Kay “The effect of inducement prizes on innovation: evidence from the Ansari XPrize and the Northdrop Grumman Lunar Lander Challenge” 14 Sep 2011 onlinelibrary.wiley.com/doi/10.1111/j.1467–9310.2011.00653.x/full 217 Lord Drayson “UK Innovation Fund” 9 July 2009 http://webarchive.nationalarchives.gov.uk/+/web.bis.gov.uk/ministers/lord-drayson/uk-innovation-fund 218 HM Treasury “Budget 2010” June 2010 www.hm-treasury.gov.uk/d/junebudget_complete.pdf 219 Institute for Fiscal Studies “Corporate Taxes and Intellectual Property: Simulating the Effect of Patent Boxes” IFS Briefing Note 112 2010 www.ifs.org.uk/bns/bn112.pdf 220 House of Commons Environmental Audit Committee “The Green Investment Bank” 3 March 2011 www.publications.parliament.uk/pa/cm201011/cmselect/cmenvaud/505/50502.htm cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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this time the first personal computer emerged.221 The success of Silicon Valley is well documented, but the role of DARPA (and of the state) in its creation is less so. Without the investment of the state in DARPA, it’s unlikely that the US would be benefitting from the economic benefits of the companies that comprise Silicon Valley today. February 2012

Written evidence submitted by Novartis 1. Novartis welcomes the opportunity to respond to the Science and Technology Committee’s inquiry on “Bridging the ‘valley of death’: improving the commercialization of research”. We are delighted to have the opportunity to outline the company’s views and experiences on the current research environment and how this could be improved.

Background on Novartis 2. Our research focuses on areas of unmet medical need, connecting science with patient insights in order to develop new treatments and drive industry standards. One of the world’s biggest industry investors in research and development, Novartis globally invests $8 billion annually, representing 16% of sales, and does more clinical research in the UK than any other company. Novartis employs over 3,200 people across eight sites in the UK, with responsibility for the research, development, manufacture and sales of pharmaceuticals, generics, biosimilars, vaccines, over the counter (OTC) and eye care products, as well as medical devices. This extensive portfolio of products and treatments enables Novartis to provide a distinctive perspective on the current situation regarding research, from early research through branded products, to generics, over the counter medicines and devices.

Opening remarks about research in the UK 3. Research investment in the UK by global sponsors has been in decline in recent years, dropping from 6% (global share) in 2002 to between 2% and 3% in 2008. Yet patients who enroll in clinical trials have better outcomes because a trial provides an earlier opportunity for the NHS to adopt innovative medicines, creates a highly skilled NHS workforce and positions the UK as a leading centre for the life sciences sector. However, research and development is a long and costly process, with most medicines taking between 12–15 years from inception to being available for patients and only one in 5,000 researched new compounds making it to market. 4. It is essential that all stages of development are considered when assessing the barriers to the commercialisation of research. This is because there are multiple factors at work, none of which can be viewed in isolation. For example, a key factor for Novartis in deciding where to place this early phase research is whether there is uptake of new and innovative medicines by the NHS once they have secured the relevant regulatory approvals. While we support the role of NICE in ensuring the NHS gets value for money and cost effectiveness for new medicines, when patient access to innovative medicines is blocked, it negatively impacts on the UK as a welcoming environment for innovative companies to place their research and development. Put simply, without adequate uptake of medicines, commercialisation will decline.

What are the difficulties of funding the commercialisation of research, and how can they be overcome? 5. The geographical allocation of funding for research in a global pharmaceutical company is competitive. Decisions about where to allocate funding are based on a myriad of factors including access to medicines, the skills base, the competence and track record of a particular country and, of course, issues around costs, efficiency and timeliness of research. In short, the UK needs to be a world leading home for research in order to attract global research investment. 6. This is particularly acute for Novartis. The R&D model for many pharmaceutical companies is changing, with many now looking to biotech companies and academia to provide them with new targets and new therapies, thus reducing the need for in-house activity. Novartis has publicly stated the opposite approach and continues to have major in-house R&D facilities, including our global centre for respiratory research which is based in the UK at our Horsham site in West Sussex. However, in order to sustain this position, we must demonstrate to our global parent company that the UK is a world-leading location in which to attract research funding, thus sustaining our major R&D investment in the UK. 7. The UK faces strong competition from emerging economies such as China, India, Brazil and Russia which offer strong incentives, both simple subsidy and contractual incentives, for pharmaceutical companies to establish R&D and manufacturing facilities. From an R&D perspective, these countries can enable companies to have a simplified path to registration and marketing. On occasion, the UK has lost out as few similar investment incentives have been offered. 8. The UK is also let down in attracting funding for research by barriers such as: 221 M. Mazzucato “The Entrepreneurial State” DEMOS July 2011 www.demos.co.uk/publications/theentrepreneurialstate cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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— An overly complex market access environment with multiple hurdles and inconsistent decisions, which vary by location and result in slow and inconsistent uptake of new medicines. — Lack of consistency between MHRA and NICE on trial endpoints. — New product innovations being blocked by reimbursement bodies. The UK performs very poorly in the overall ranking for speed of uptake of new medicines, despite having among the lowest prices in Europe. — The use of unlicensed medicines in place of licensed alternatives undermines the regulatory process and presents a major barrier for Phase II-IV trial placement, innovation and investment. — A complex, costly and slow clinical research environment, with an historic lack of inter centre collaboration. — A lack of accountability for the delivery of commercially sponsored studies at NHS Trust level. 9. Overcoming some of the barriers outlined above will require a concerted focus on R&D in its entirety from basic research/translational medicine, clinical trials and outcomes research based on real life data. Whilst we welcome the Government’s proposals to position the UK as a global leader in open data, it is vital to recognise that this will not be a possibility without greater commitment to the skills that underlie all aspects of R&D work.

Are there any specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 10. We can only comment on difficulties in commercialising medicines research. The key point here is that pharmaceutical R&D investment in the UK is, to some extent, dependent on the willingness of the NHS to support and adopt the innovations that are developed as a result of R&D activity. Without adequate uptake, medicines commercialisation will decline. 11. There is a particular issue in the UK around slow uptake of new medicines. We have been encouraged by recent proposals from Government to address this in the Innovation Review and we look forward to working with the NHS to see these recommendations implemented. 12. Currently, Novartis is aware of a number of local NHS agencies that are seeking to provide patients with unlicensed medicines in place of licensed and NICE approved medicines in order to save money. This acts to undermine the medicines regulatory regime, with negative implications for patient safety, and creates significant business uncertainties for companies, thus damaging the UK as a location for investment in R&D. 13. Recent draft General Medical Council guidance on Good practice in prescribing and managing medicines and devices is potentially very damaging if adopted. By proposing to relax regulations around the prescribing of unlicensed medicines to allow cost savings to be achieved, this guidance creates uncertainties for companies investing in the R&D work required to bring a new treatment to market. 14. The issues outlined in the previous section also need to be addressed to overcome challenges with commercialisation.

What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 15. In general, the erosion of clinical research investment in the UK has been in favour of increased investment in lower cost markets. This decline in UK investment must be viewed in the context of an environment where the industry is under great pressure from patent expirations and increased demands from regulators and payers, so difficult decisions must be made by global pharmaceutical companies about where to place research. 16. China increased R&D spending by more than 20% year on year between 1999 and 2005, and it is now the second largest R&D investor after the USA, with a six-fold increase in investment planned by 2020. India is also investing heavily in research and science institutes, while Singapore has one of the fastest growing bioscience clusters in the world after recent government investment of over $2 billion. In order to compete with these countries—the scale of their investment, their population size and the magnitude of their current and future economic growth—the UK must also continue to invest in research to ensure it retains its comparative advantage. 17. The US, China and Singapore are performing well on early research. China, Germany and Eastern Europe are proving successful on late phase research by enrolling more patients into studies, through bigger centres which are better equipped to undertake research, and through stronger links between primary and secondary care. A similar “hub and spoke” approach in the UK would be enormously beneficial to our ability to attract investment for research. 18. With regards to manufacturing, Brazil, China and even the US have become attractive destinations for investment, through subsidies or contractual incentives. The recent Novartis flu vaccine manufacturing site in North Carolina received approximately 50% capital funding from the US government with 50% of ongoing cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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operating costs for the next 15 years. Our Italian vaccine manufacturing plant has also attracted investment, partly due to co-located R&D. 19. Recent changes to the immigration system do not support and, in fact, may actively hinder business goals. In a specialist industry such as biologics manufacturing, the UK simply does not have the right mix of skills at present. To develop this expertise is a long-term process that will require significant investment in engineering, the sciences and on-the-job skills. Industry needs to select the right people with the right skills now, while the skills base across the UK as a whole is further developed and enhanced over the next few decades. 20. An added problem for the UK is that there are too few clinicians equipped to undertake research and the system in which they operate is too fragmented. The UK needs a talent pool of medics with an interest and expertise in research, drug development, translational medicine and the industry. With many of these elements having been removed from the basic medical training curriculum, the UK is no longer developing the same talent pool as other countries such as Germany or the USA. This leads to an impression that the NHS culture does not embrace R&D, as evidenced by the lack of performance management measures for research and the lack of ambition (for instance, 50% recruitment to a trial is considered a good result). We need to see a shift in NHS culture, with greater incentives for research and external partnerships. 21. Our perception is that, while there will probably be a reduction in high level scientific research, a small volume will continue to be located in the UK as long as British universities are world class, and there is recognition that a strong scientific and translational community needs to be coupled with a strong pharmaceutical base. However, unless there is a significant improvement in terms of the clinical research environment, medicines uptake and the regulatory environment for manufacturing, the UK will continue to see a decline in investment from the pharmaceutical industry in terms of drug development, production and commercial activity.

What evidence is there that Government and the Technology Strategy Board initiatives to date have improved the commercialisation of research? 22. The Government has made several moves to enhance the pre-clinical research agenda, but with mixed success: — Patent Box: in its current form, the Patent Box is not currently an incentive for a company like Novartis to invest in the UK because it is only open to companies that have registered the intellectual property (IP) in the UK. To rectify this, we would recommend that the Patent Box is extended to include income arising in the UK from overseas registered IP that is exploited here. — R&D tax credits: we welcome the recent changes to R&D tax credits which will mean that by 2013 we are able to account for the benefit more visibly, bringing the UK into line with other markets which are already able to do so and which attract more investment as a result. — However, we are concerned that this will be offset by the unintended consequences that the reduction in corporation tax will have on our ability to recoup investment made in R&D via the R&D tax credits. While the reduction in corporation tax is to be welcomed, this benefit will be enjoyed by all business sectors and, if the Government is focused on attracting more R&D specific investment, we would suggest consideration is given to neutralising the impact of the reduction in corporation tax. — Currently companies benefit from an uplift in the credit of 30%, which gives a tax benefit (at 28%) of 8.4%. As the UK rate falls to 23% from 2014, the effective benefit of the 30% uplift will fall to 6.9%. We believe that the uplift should be increased to, at least, keep the effective benefit level at 8.4%. Once public finances improve we would suggest that an effective benefit of 10% would be really powerful in terms of persuading businesses to move R&D to the UK. — Capability Clusters: we have been encouraged by the Government’s work on forming therapeutic capability clusters in respiratory and joint inflammatory diseases, and Novartis is a partner in both clusters. We believe these clusters could enable the UK to compete with global hubs, such as Boston, through collaboration of UK plc, academia and the NHS in sharing knowledge and skills. 23. We have also been pleased to see some initiatives focused on the later stage research agenda. For example, Government support for the research networks: NOCRI has helped to flag areas of expertise that have previously not been obvious; NIHR metrics are beginning to make a difference to the speed of start-up and recruitment for trials; and we are hopeful that the new Health Research Authority, alongside the Clinical Research Practice Datalink (CRPD), which will provide real life data, will also contribute to this new, positive support for R&D in the UK.

What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 24. We have been encouraged by recent Government announcements relating to research, particularly in the recent Life Sciences Strategy published in December 2011. We particularly welcomed Mr Cameron’s statement on R&D that “we are determined to support it, to invest in innovation, to stoke early-stage investment and to tear down the barriers to development...and above all to have your products tested and adopted in the NHS cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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much more quickly”. We are pleased that it has been recognised that the NHS should work “hand in glove” with the life sciences industry because the sector is changing fast and “a new paradigm is needed”. We particularly welcome initiatives on the early access scheme, Clinical Practice Research Datalink and £180m Biomedical Catalyst Fund. 25. As explained above the critical success factor for the UK is how the challenges around access to innovative medicines in the NHS will be addressed, whether in terms of hurdles with NICE or local access barriers post NICE approval. 26. Overall, the strategy contains a strong focus on SMEs. We would like to have seen further measures to support established large pharmaceutical companies, which employ thousands of UK nationals, make a substantial contribution to the UK economy and are critical for growth in the UK. For this to succeed we need to see a shift in NHS culture, with greater incentives for research and external partnerships.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? N/A

What other types of investment or support should the Government develop? 27. A further area that could be looked at is the inconsistent and non-transparent approach many NHS Trusts have for calculating prices and incentivising research. In our view, it is essential that all stakeholders are incentivised fairly to participate in industry sponsored research. NHS trusts have historically managed income from research in a variety of ways but it should be expected that funding flow from commercial research is used to support investigator incentivisation and local infrastructure for research. However, there is currently no structured arrangement for this. The UK will only become competitive as a location for industry trials if the clinicians who run the trials are properly incentivised to deliver on their commitments to industry trials. 28. In Germany, for example, there is a system called the Gebührenordnung für Ärzte (GOÄ) which defines exactly the amount of money an investigator can get for a specific examination. Investigator fees are not negotiated individually and all investigators receive the same amount of money. The German system is widely considered to be the “gold standard” for their approach to incentivising investigators. 29. We recommend that the following steps are taken to address this situation: — Address the per patient reward disparity at a NHS Trust department level between commercial and academic grants to ensure that there is a level playing field. — Ensure that investigators are properly rewarded for their research in two ways: — Funds should go directly back to investigators’ departments and not “lost” in general NHS Trust budgets. — Where the funds do return to R&D departments, consideration needs to be given to investigators receiving a higher percentage of the total trial budget. 10% is not an adequate incentive. — Introduce a mechanism to ensure that NHS Trusts adhere to the NIHR costing template. — Overhead costs in NHS Trusts need to be dramatically reduced and more proportionate to the numbers of patients recruited. — Ensure that the Clinical Excellence Awards are able to continue as a valuable incentive in encouraging clinical research. February 2012

Written evidence submitted by the Met Office Introduction 1. When the Met Office first began to commercialise its output in the late 1980s, there was no easily defined or accessible marketplace for weather and climate services and only one other UK company offering meteorological services. Breaking into the first markets for commercial weather services was a long process but once the way was open UK competitors quickly emerged and the normal, and healthy, supply and demand economics began to shape the market size and commercial services being offered. 2. The Met Office’s continued commitment to exploit and share its underpinning science with the wider UK research base and the marketplace drives a well-rehearsed cycle of market definition and innovative product breakthrough. The following memorandum is written against this background, and describes some of the success, and lessons learned, by the Met Office and private and public sector partners in commercialising breakthroughs within the Environmental Sciences arena. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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The Science to Service Thread 3. In considering the difficulties in taking science through to direct application or service, it is important to first consider the scale of separation between the research and market communities. The thread between the fundamental or core research and its direct application in a commercial setting can be long, often with a large separation between users of potential applications and the research bodies. 4. Researchers and industry in the environmental science arena are increasingly realising that the translation of science to service cannot be best and quickly achieved by either community alone, or without the catalyst of an active delivery body. 5. In recognition of this, the Met Office and other public sector partners have for some time been working to create cross-organisational links along the entire thread to facilitate, integrate and operationally deliver innovative services from core and directed environmental science research.

Partnering at Operational Delivery Increases Visibility of Market Needs 6. The Met Office has an international reputation as a world class science institute working at the cutting edge of weather and climate science. A key strength of the organisation lies in the ability to pull science research through to direct application—quickly and to an identified market. This means the delay between scientific advance and the help it offers, through improved services or policy advice, is very short indeed. 7. The Met Office’s capacity to pull science through quickly, combined with its data assimilation222 and modelling expertise and robust operational capabilities, are increasingly being exploited as key factors in supporting the integration of science breakthroughs from a number of sources, and across a number of environmental disciplines, to provide services in policy formation, protection of lives and livelihoods, and to help enterprise maximise profits and minimise exposure to risk: — The Flood Forecasting Centre: a partnership with the Environment Agency combining expertise in hydrology and meteorology to provide a hydrometeorology service to provide longer lead time flood forecasts and more accurate, targeted information in flood emergencies. — Dispersal monitoring and prediction: modelling the spread and attribution of, for example, airborne pests and diseases, air quality and air-borne pollutants, radioactive incidents, volcanic ash. — Space weather prediction: translating science into warning services for industries including satellite communications, aviation, mining, electricity supply. 8. In many cases, these and other services demonstrate the importance of also having close ties with other service delivery bodies (eg Health Protection Agency, RIMNET) to provide truly joined up advice. 9. Success of operational application and delivery in these areas stems partly from the fact that, as well as carrying out directed research to fill specific knowledge gaps, the Met Office works closely with the end-user communities in many different industry sectors to understand market requirements, aspirations and issues. Visibility into the market is a vital factor in commercialising technology-ready science to enable speedy and targeted application.

Collaborative Research Improves Visibility Across the Science 10. This dialogue forms, however, only one link across the entire thread: a significant part lies some way before the point at which science breakthroughs are ready to take to the market; within the research community itself. 11. Researchers in the environmental science community are increasingly aware of the connections and, in some cases overlaps, between the various disciplines and are therefore much more open to partnering with others in related areas. Indeed, in some cases, furthering the science in one discipline (eg climate) can only be accomplished through collaboration. 12. The Met Office is actively developing and extending its established collaborative working within the environmental science domain: with academia where, for example, the Met Office Academic Partnership between Met Office and the universities of Exeter, Leeds and Reading was launched last year; with the Research Councils in, for example, the Joint Weather and Climate Research Programme between Met Office and NERC; and with private enterprises including initiatives such as the Exeter Science Park. 13. Collaboration and partnerships between environmental science institutes not only enable a quicker development in areas of immediate interest, but provide a vital advantage in that new relationships between the disciplines are uncovered. Meteorologists and crop scientists, for example, are now integrating modelling to provide services which range in application from humanitarian disaster relief to the futures and commodities markets. 14. Exploring these new links may certainly increase the potential benefits from collaborative activities but, if partnerships exist only within the research community there remains a lack of visibility within industry and 222 Data Assimilation is a technique for a synthesis of information from a dynamic (numerical) model and observation data. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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other end-users of what research is being conducted and, importantly, a corresponding lack of visibility within the research community as to the potential value and scope for the application of emerging science.

Partnering Researchers, Industry and Delivery Drives a Complete Science to Service Thread

15. In environmental science, the Met Office increasingly acts as a hub for the integration of related branches as well as a platform from which to stimulate a dialogue between the research community and industry. This approach is also recognised within other initiatives, such as the International Space Innovation Centre (ISIC) at Harwell. This STFC-supported public-private partnership was formed to bring together Government, industry and the academic community with the express purpose of promoting greater and more efficient collaboration in the development of space related technologies and science. The Met Office’s involvement completes the collaborative requirement to ensure delivery of operational services developed from these and space weather research collaborations.

16. It is the bringing together of science, market and operations that enables truly innovative solutions to be developed and delivered. This is especially true when considering the potential from breakthroughs being made in “blue sky” or conceptual research which, when brought together with other research and inﬂuences, such as that found in partnership hubs, enable even greater innovation and growth in the longer term. February 2012

Written evidence submitted by the Association of Medical Research Charities

1. We welcome the opportunity to contribute to this inquiry.

2. The Association of Medical Research Charities (AMRC) is a membership organisation of the leading medical and health research charities in the UK.

3. Charities are part of the UK’s diverse funding landscape. In 2011–12, AMRC’s 124 medical research charities invested over £1 billion in health research.223 In the same year, over 3,000 clinical studies were conducted in the NHS; 37% were funded by AMRC member charities. This investment contributes to the UK’s strength in biomedical science, bringing economic beneﬁts. All our members are focused on beneﬁting patients and share a commitment to funding the highest quality research and many have a strong patient group allied to them.

4. In this response we use case studies of current charity practice to demonstrate the role of medical research charities in the UK’s research funding ecosystem. Responding to your questions we demonstrate some of the key blockages and how charities could play a greater role working with others in industry and universities to accelerate the commercialisation of research.

5. Key Points — Supporting medical research is the most popular reason for people to donate to charities in the UK. Therefore charities have a strong mandate to ensure their investments deliver better healthcare for patients. Successful commercialisation of research is key to achieving this. — Therefore charity and industry priorities to commercialise research overlap. — Government must focus on providing the infrastructure to underpin collaboration and successfully drive commercialisation. This includes measures underway to streamline regulation and create a research-friendly NHS, and also proactive work to increase market certainty, focus funding to increase research capacity in key areas and boosting academic engagement in commercialisation. — Charities are hubs of expertise playing a unique role as an honest broker between patients, academia and the commercial sector. — Charities pull innovation through the system by identifying and championing investment opportunities and developing valuable market data. As experts in their disease area they can identify gaps in research and capacity and proactively drive exploration of opportunities with researchers, universities and commercial investors. — Charities de-risk investments by providing vital funding for early stage research. Charities of all sizes can work constructively with private investors to de-risk their investment. — Charities provide a patient focus. This can improve design of research studies, recruitment of patients and uptake of commercial products, combating market uncertainty. — The Life Sciences Advisory Board membership should include charities who can represent the patient voice. The third sector offers valuable expertise in developing innovative funding strategies focused around patient need. 223 £1,189 million including capital expenditure—Data from AMRC research expenditure database, collected 2011–12. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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6. The Role of Charities in Funding Medical Research in the UK The UK is relatively unique in having a strong medical research charity funding sector. Medical research is the most popular cause people choose to support in the UK with over 11 million people giving on a monthly basis.224 AMRC has 124 members with a range of sizes:

7. Together AMRC member charities invested over £1 billion in health research in 2010–11.225 These charities are part of a diverse funding landscape which helps create a stable research environment. This makes the UK an attractive place to invest. 8. An Office for Health Economics analysis commissioned by Cancer Research UK226 shows the value of this interaction and the interdependency of funding, creating economies of scale which attract further investment. This finding built on previous work looking at US models which demonstrated that charitable investment can attract industry investment: “A £1 increase in UK government or charity spending on medical research could lead to an increase in private research spending from the pharmaceutical industry of between £2.20 and £5.10.”227 9. Charities are hubs of expertise. Many have direct links with people with medical conditions and work with leading clinicians in the field, bringing together research knowledge and patient experience. They can play a unique role as an honest broker between patients, academia and the commercial sector. 10. Charities can pull innovation through the system by identifying and championing investment opportunities and developing valuable market data. As experts in their disease area they can identify gaps in research and capacity and proactively drive exploration of opportunities with researchers, universities and commercial investors.

Case Study 1—The Ministerial Advisory Group on Dementia Research The Ministerial Advisory Group on Dementia Research includes many AMRC member charities— Alzheimer’s Society, Alzheimer’s Research UK, Age UK, Parkinson’s UK, The Stroke Association and the Wellcome Trust. This group has ensured dementia research is a priority on the political agenda and have produced a route map for dementia research. Alzheimer’s Research UK recently published Defeating Dementia 2012228 to push for the development of a long-term national dementia research strategy. This conducts analysis of UK dementia research, noting the areas of excellence and the capacity building needed to maximise this. Initiatives driven by this group will maintain/attract industry investment in dementia research in the UK. 224 Charities Aid Foundation and NCVO, UK Giving 2011, 2012 www.ncvo-vol.org.uk/news/funding/over-million-more-give-charity-over-last-year-yet-total-donations-stay-ﬂat [accessed 17 February 2012] 225 Data from AMRC research expenditure database. www.amrc.org.uk/value-charitable-investment-in-medical-research_value- charities-contribution-to-uk-success-in-life-sciences_who-funds-medical-research-in-the-uk [accessed 17 February 2012]. 226 Cancer Research UK, Exploring the Interdependency between Public and Charitable Medical research, April 2011 info.cancerresearchuk.org/prod_contrib_wcm/groups/cr_common/@nre/@pol/documents/generalcontent/cr_071922.pdf [accessed 22 September 2011] 227 Alzheimer’s Research Trust, Forward Together: Complementarity of public and charitable research with respect to private research spending, 2009 www.amrc.org.uk/value-charitable-investment-in-medical-research_value-charities-contribution-to-uk-success-in-life-sciences_ charitable-funding-boosts-private-investment [accessed 22 September 2011] 228 The Ministerial Group on Dementia Research—headline report, www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_127750 [accessed 17 February 2012] Defeating Dementia 2012, www.alzheimersresearchuk.org/siteFiles/resources/documents/reports/ARUK_Defeating_ Dementia_-_Building_capacity_to_capitalise_on_the_UKs_research_strengths.pdf [accessed 17 February 2012] cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Case Study 2—Investing in Infrastructure for Research Breast Cancer Campaign conducted a wide scale involving over 50 of the world’s leading breast cancer researchers. This highlighted that the one of the main barriers to progress was a shortage of good quality tissue—the raw material for research. In response to this, Breast Cancer Campaign have established a unique collaboration with four leading research institutions to create a vital resource of breast cancer tissue for researchers across the UK and Ireland— the UK’s ﬁrst ever national cancer tissue bank. Tissue samples donated by patients from across the UK will be safely and consistently stored. These samples will then be available to scientists to study how and why breast cancer develops and spreads, and to devise the best possible treatments. There is currently no other large source of breast tissue available to scientists and doctors, like this one, anywhere in the world. Further information available here: http://breastcancertissuebank.org/about-tissue-bank.php [accessed 22 September 2011]

Case Study 3—Action on Hearing Loss Translational Research Initiative for Hearing (TRIH) Action on Hearing Loss has established a Translational Research Initiative for Hearing (TRIH) which is focused on supporting translational research to advance medicines to protect and restore hearing, and silence tinnitus. The initiative is designed to support translational research: — Through a new funding scheme. — By facilitating partnerships between industry, academics, investors, philanthropists and others. — By engaging patients to support, and to demand, new treatments and cures for their hearing loss and tinnitus. Action on Hearing Loss has developed tailored portals for different partners in the process: — TRIH Funding Scheme—supporting translational research in hearing loss and tinnitus. — TRIH Partnerships—a platform by which industry can enter hearing research in a low-risk way. — TRIH Research Hub—a service to assist companies in easily identifying partners (academic groups & contract research organisations) to carry out speciﬁc tests or assays. — Clinical Trials Database—a means of engaging patient support for, and participation in, clinical trials for hearing loss and tinnitus globally. Further information available here: http://www.trih.org/ [accessed 31 August 2011].

Case Study 4—Translation Awards The Wellcome Trust provides translation awards with the primary purpose of securing a healthcare beneﬁt from the development of new technologies/products. Projects must address an unmet need in healthcare or in applied medical research, offer a potential new solution, and have a realistic expectation that the innovation will be developed further by the market. However, given the uncertainty inherent in early stage research, awards are made with no expectation of a ﬁnancial return.229 11. Charities can de-risk investments by providing vital funding for early stage research. Charities of all sizes can work constructively with private investors to de-risk their investment and release greater investment in research.

Case Study 5—Exploitation—Seeing an Opportunity—Yorkshire Cancer Research Approximately six years ago, trustees of Yorkshire Cancer Research developed a new funding stream to allow them to fund a spin-out company founded between one of the charity’s programme award holders and his university. They were subsequently able to support a researcher with a promising translational project to enter into negotiations with the company, developing non-disclosure agreements to allow these to go ahead. The researcher is now applying for a Commercial Development Award from Yorkshire Cancer Research to undertake proof of concept research. If successful, the company, with Yorkshire Cancer Research’s support, will be interested in a much larger scale plan for commercialisation. Without the charity’s input the connection between the researcher and the spin-out company is unlikely to have been made.

Case Study 6—Cancer Research UK Clinical Development Partnerships Cancer Research UK—clinical development partnerships ensure oncology agents that might not be worth industry investing in can come to market. 229 www.wellcome.ac.uk/funding/technology-transfer/awards/translation-awards/ [accessed 23 September 2011]. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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“Our clinical development partnerships serve this function, by taking molecules which have been shelved for strategic reasons within pharma or biotech into drug development in Cancer Research UK, based on an option arrangements whereby we move it forward, then afterwards the company we’re dealing with gets to look at the data and, if they like what they see, take it back. But if they don’t, then we get to take it forward.” Keith Blundy, CEO of Cancer Research Technology.230 12. Charities provide a patient focus—improving design of research studies, recruitment of patients and uptake of commercial products, combating market uncertainty.

Case Study 7—UK DUETS The UK Database of Uncertainties about the Effects of Treatments (UK DUETS) works with patients, carers and clinicians to identify where more research needs to be done into the effects of treatments—in effect ﬂagging up opportunities for further research to improve treatments, some of which could entail small changes which make a dramatic difference. A number of medical research charities have taken part in this process, with the “top 10 questions” becoming an integral part of their research funding strategy. Further information available here: http://www.library.nhs.uk/duets/ [accessed 31 August 2011]

Case Study 8—Arthritis Research UK User Committee Arthritis Research UK has developed a Stakeholders Research Strategy Review (USER) committee with the remit to provide a user perspective on research that the charity may fund. USER comprises front-line healthcare professionals, who are not research-active, and informed lay members. USER members consider: strategic importance; potential of the research to lead to clinical beneﬁt; issues of practicality. USER provides a brief report which is circulated to the relevant funding committee to inform the peer review process. These views ensure that the best science with the best chance of practical uptake is funded.231

What are the difficulties of funding the commercialisation of research, and how can they be overcome? Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 13. Commercialising life sciences research takes a long time and there is a high failure rate which can be a disincentive for many investors. The development of a new drug or therapy, including gaining regulatory approval and optimising complex manufacturing processes, can take 10–15 years before it is ready to go on the market and become available to treat patients. Investment is needed throughout this process. However, after this time period, this investment does offer significant returns. “For each pound invested by the taxpayer or charity donor into cardiovascular disease and mental health research, a stream of benefits is produced equivalent to earning 39 pence and 37 pence respectively each year ‘in perpetuity’”.232 14. Creating a system to incentivise investment up to this point and share the risk is necessary if we are to offer an attractive proposition for investors. 15. There are difficulties specific to commercialising life sciences research: — Regulation. — Market certainty. — Developing research capacity and supporting skilled individuals to engage with translation.

Regulation 16. Clinical trials are a vital stage in the development of effective new treatments for patients. There is currently a lack of proportionality in the regulation of clinical trials and considerable administrative burden which leads to increased costs and delays and is hampering the conduct of clinical trials in the UK.233 The UK’s share of patient enrolment declined from 2004 to 2008 from 2% to 1.4% of both phase II and phase III trials. There is concern that if this trend continues and less trials are based in the UK, our capacity and expertise to conduct these trials will erode.234 230 Dow Jones Newswires, 08:35 GMT DJ INTERVIEW: UK Cancer Research Technology Offers Unique R&D Access,19Sep 2011. 231 www.arthritisresearchuk.org/research/our_research_strategy/funding_research/user_committee.aspx [accessed 31 August 2011]. 232 Medical Research: What's it worth? UK Evaluation Forum; 2008. 233 Revision of the EU Clinical Trials Directive: A joint statement from non-commercial research organisations in the UK, 2011 www.amrc.org.uk/news-policy—debate_policies-positions-and-brieﬁngs_policy—position-statements [accessed 17 February 2012]. 234 Nesta, All together now: Improving cross-sector collaboration in the UK biomedical industry, 2011 www.nesta.org.uk/library/ documents/Report_67_Biomed_web.pdf [accessed 17 February 2012]. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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17. Research must often take place across multiple NHS sites. The process for obtaining research permissions across multiple sites can introduce delays and duplication.

Case Study 9—Time Taken to Navigate Complex Research Approval Processes A recent analysis from Cancer Research UK showed that after its funding for a study has been agreed, it now takes an average of 621 days to recruit the first patient.235 18. Access to patient data offers a considerable resource for health research and is valuable to the commercialisation of research. However further work is needed to create a safe and secure system which simplifies access to data, ensures that patients can be offered relevant opportunities to be involved in research. AMRC polling found that there is considerable public appetite for these opportunities to be made available: — 72% would like to be offered opportunities to be involved in trials of new medicines or treatments if they have a health condition that affects their day-to-day life. — 80% would like to consider allowing a researcher confidential access to their medical records. — 88% would be happy to be asked to talk to researchers about their family history or give a sample of their blood to be tested in a laboratory. 19. Despite ongoing work to improve recruitment including the creation of the UK Clinical Trials Gateway236 which allows people to search for clinical trials of interest to them and greater links with patient networks, there can still be considerable delays in recruiting patients to clinical trials. UKCRC funded work exploring patient and GP understanding and acceptance of the use of patient data in research highlighted significant barriers at GP level to facilitating data-sharing.237 20. Greater recognition of the value of patient and public involvement in research is needed. This will require support for health professionals to engage with patients effectively about research projects.

Market Certainty 21. To attract investment into commercialisation of research there needs to be an end market. Our members have expressed frustration with the products of their research both failing to receive NICE approval or receiving NICE approval and subsequently not being adopted throughout the NHS. Strict commissioning guidelines are needed to ensure approved innovations are rapidly taken up across the NHS.

Case Study 10—NICE Decision to Not Approve Abiraterone In February 2012, NICE ruled that Abiraterone would not be funded on the NHS.. Abiraterone, a drug that blocks the production of male hormones in all tissues has proven successful in reducing symptoms and increasing the quality of life of men with advanced prostate cancer, but has been turned down by NICE on the grounds of cost. Abiraterone has been one of the most requested treatments from the Cancer Drugs Fund since it became available in the UK, with over 500 men receiving the drug. The Cancer Drugs Fund is only available in England and is set to expire in 2014. The drug was developed with at the Institute of Cancer Research, following extensive support of charities including Cancer Research UK. It has been approved for use in the USA, but will not be available to men in the UK.238 22. It is worrying that promising therapies with no clear market value may not be commercialised.

Case Study 11—Difficulties Securing Funding for Off-Patent Drug Commercialisation Research funded by Breast Cancer Campaign and conducted in mice found that a regimented six week course of two established anti-cancer drugs was effective in reducing breast cancer growth and secondary tumours in bone. However, as a result of one of the drugs being out of patent and the other reaching the end of its patent, the researchers were unable to secure funding for a full clinical trial to demonstrate efficacy in patients. There has been no further work conducted on this potential new treatment. 23. The advent of stratified medicine, which could lead to the development of treatments for smaller sub- groups of patients within a disease area, raises future challenges to uptake, including the need to develop systems to identify those that may benefit and develop local expertise to administer treatments.

Case Study 12—Cancer Research UK Investment in Stratiﬁed Medicine Recognising the direction of cancer research and the potential of stratiﬁed medicine—treating different groups of patients differently based on the genetic nature of their disease—to improve treatment, Cancer 235 Average time from 25 studies approved by Cancer Research UK’s Clinical Trials Awards and Advisory Committee during the period November 2006 to July 2007. 236 www.ukctg.nihr.ac.uk/default.aspx [accessed 17 February 2012]. 237 UKCRC Public Awareness Sub-Group on Patient Data, Attitudes and awareness amongst general practitioners (GPs) and patients about the use of patient data in research, 2010. 238 www.icr.ac.uk/press/recent_featured_articles/Story_Abiraterone.index/shtml cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Research UK are building a partnership between patients, the research community, the NHS, the pharmaceutical and diagnostics industry, and the government to make genetic testing routine practice and link this to research, creating a national database of tumour genetic information, treatments and outcomes as a research resource to help deliver better treatments in the future.

Developing research capacity and supporting skilled individuals to engage with translation Universities must be proactive to attract industry investment, developing models for early collaboration. Recognising that many researchers do not consider commercialisation opportunities, charities are already building relationships with researchers and university technology transfer ofﬁces to exploit opportunities for commercialisation. These models of best practice could be applied across the UK.

Case Study 13—Identifying Opportunities—Yorkshire Cancer Research Yorkshire Cancer Research meets every year with each of its programme award holders to discuss patient benefit, IP and commercial issues. The meetings involve its research liaison officer, commercial and clinical development officer, and an experienced life-sciences patent agent (who provides this assistance for free). University technology transfer representatives sometimes attend or the charity communicates any positive outcomes it discovers to the university. This allows the charity to put its own expert slant onto the opportunity from the outset. There isn’t a set format for the meetings. Some programme award holders will involve some or all members of their teams and the charity is happy to encourage this approach. It fosters good relationships with all programme team members and lets them know Yorkshire Cancer Research is interested in the commercialisation agenda. Without exception, the charity has come away from the meetings knowing things it did not know before. In the majority of cases, there has been something in the way of a possible patent application to explore or a commercial issue to follow up.

Case Study 14—Three-Way Meetings between Principal Investigators, Technology Transfer Ofﬁce and Charity—Breakthrough Breast Cancer As Breakthrough Breast Cancer jointly owns IP arising from its funded research, it needs to be proactive and keep track of new and potential opportunities arising from research. To do this, it has established three- way meetings where representatives from Breakthrough Breast Cancer’s research management directorate meet with the principal investigators and the Institute of Cancer Research’s enterprise unit. The meetings take place twice a year and are used to update and inform all parties on all aspects of IP arising from Breakthrough Breast Cancer-funded laboratories. The IP portfolio is discussed, including patents, licensing agreements, exclusivity rights and research that may have future commercial value. Decisions are made on all aspects of IP management from exploitation through to allowing patents to lapse. The principal investigators and charity beneﬁt from the insight and expertise of the enterprise unit and the process allows the enterprise unit and charity to keep track of potential new opportunities raised by the principal investigators.

What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 25. AMRC members’ priority is to fund high quality research to develop new treatments for patients. The majority of this funding is invested within the UK, however in some cases, charities choose to fund abroad. In 2011–12, 6.1% of AMRC members research funding was invested outside the UK. This is a slight increase on the previous year where 5.4% was invested internationally. However there is no clear long-term trend.239 Interestingly, alongside this slight increase in international funding, AMRC member spending on UK research programs is down slightly on the year before. This is in contrast to a long-term trend of year on year increase. 26. This may be because research capacity is not present in the UK.

Case Study 15—Action on Hearing Loss Funding Outside the UK Action on Hearing Loss funds £1 million of hearing research each year but a lack of hearing research capacity in the UK means that they are often forced to make investments outside the UK. For the period 2009–10 to 2011–12, 44% of their research budget has been spent overseas. 27. There are also concerns that delays negotiating UK research regulation and poor levels of patient recruitment may drive research abroad, which over time may erode our capacity and expertise to conduct research trials.240 239 Data from AMRC research expenditure database, collected 2011–12 www.amrc.org.uk/maintain-the-uk-as-a-global-leader-in-science_champion-uk-medical-research-at-home-and-abroad_charity- uk-and-international-research-expenditure 240 Nesta, All together now: Improving cross-sector collaboration in the UK biomedical industry, 2011 www.nesta.org.uk/library/ documents/Report_67_Biomed_web.pdf [accessed 17 February 2012]. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 28. The Technology Strategy Board has a strong business focus which contributes a valuable diversity of approaches to research commercialisation in the UK. The Board’s remit is broad but it has limited engagement with medical research charities. The creation of a Catapult Centre focused on cell therapy is valuable but to play an effective role in supporting UK-based commercialisation, this should provide enabling infrastructure to underpin investment. There are valuable opportunities to involve third sector investors focused on developing research capacity in their disease area.

What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 29. The recognition of healthcare and the life sciences as a potential growth area for the UK has brought multiple initiatives.

30. Plan for Growth The Plan for Growth published in March 2011241 heralded work to streamline the regulation of health research and establish a Health Research Authority. This work is welcome but it is early to evaluate the impact on commercialisation. There should be ongoing evaluation of the impact of these measures with the power to recommend further action if needed.

31. Strategy for UK Life Sciences The Strategy for UK Life Sciences242 and recommendations to improve the uptake on innovations within the NHS, Innovation, Health and Wealth: Accelerating adoption and diffusion in the NHS243 launched on 5 December 2012 outline further steps to support the commercialisation of health research in the UK.

32. R&D tax credits R&D tax credits and support targeted at small and medium enterprises (SMEs) is welcome to enable these investors to enter UK public markets. These investors are able to enter into long-term commercial collaborations with charities and exploit market opportunities.

33. Biomedical catalyst scheme Universities and small or medium enterprises (SMEs) will be able to apply to this £180 million investment in a Biomedical Catalyst scheme to support the development of promising early-stage drugs into new treatments. These applicants should be supported to work with charities who can bring expertise and insights into opportunities that could valuably be targeted.

34. Early Access Scheme The plan to consult on an Early Access Scheme to identify where new treatments could potentially be given conditional authorisation, have their assessment accelerated or be licensed early to speed commercialisation is welcome. The government should consider other novel approaches of early adoption and living trials which may be more effective in accelerating commercialisation. This could be explored by the Life Sciences Advisory Board and will need the close engagement of patient communities.

35. Life sciences advisory board The new Life Sciences Advisory Board comprising of representatives from industry, academia, NHS, MRC, TSB, NIHR and government departments and led by two expert Life Sciences Champions, Professor Sir John Bell and Chris Brinsmead, alongside the appointment of a Life Sciences Adviser to the Minister for Science and Universities, George Freeman MP, is welcome. The third sector offers valuable expertise in developing innovative funding strategies focused around patient need. The Life Sciences Advisory Board membership should reﬂect this.

36. Safe and secure access to patient data for research The steps announced to develop a safe and secure system which opens up patient data for research and ensures patients are offered opportunities to be involved in research relevant to them are valuable. As the largest health system in the world, the data resource the NHS can offer researchers is considerable. 241 http://cdn.hm-treasury.gov.uk/2011budget_growth.pdf [accessed 17 February 2012]. 242 www.bis.gov.uk/assets/biscore/innovation/docs/s/11–1429-strategy-for-uk-life-sciences [accessed 17 February 2012]. 243 www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_131299 [accessed 17 February 2012]. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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37. It is important that this system is developed with public conﬁdence. Raising public awareness of the value of their data and providing detail of how it will be used safely and securely by all research funders is central to developing a system that has public support and is attractive for investors in research. 38. Government should consider the impacts on the use of patient data for research when engaging with the revision of the Data Protection framework currently underway in Europe.

39. A research-friendly NHS Key to delivering the Strategy for UK Life Sciences is a research-friendly NHS—a National Health and Research Service which welcomes and supports research and will quickly adopt new innovations when commercialised. 97% of the public believe that it is important the NHS should support research into new treatments244. As the new bodies proposed in the Health & Social Care Bill are established, the NHS should work closely with the life sciences sector including medical research charities and learn from successful initiatives pioneered by the NIHR clinical research networks to support research, commercialisation and uptake of new innovations.

40. Investing in a skilled workforce for the future To be an attractive location to commercialise research, the UK needs individuals with the necessary skills and expertise. Continued support for the development of STEM skills and to foster research capacity is vital. The government should recognise the international nature of science and industry and ensure our immigration laws facilitate the movement of skilled individuals in and out and of the UK, sharing expertise globally to remain competitive.

Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? What other types of investment or support should the government develop? 41. A stable funding environment requires a broad range of investors with different risk profiles. This includes private equity investment. 42. Charities of all sizes give their funding more reach and maximise the potential of their research by collaborating with other not-for-profit organisations, government departments, research councils and the pharmaceutical industry.245 This benefits all partners, catalysing novel research funding partnerships in areas of need and reducing risks for individual investors. 43. As outlined in this response, charities play an important role in creating innovation-pull and identifying markets. As such they are a unique asset to the UK research environment. To capitalise on this, the government should focus on ensuring the infrastructure and supply-side is available to support the development of innovative partnerships between diversely different funders. This includes developing clear pathways to take up innovations providing market certainty for investors, focusing funding to increase research capacity in key areas and encouraging academic engagement in commercialisation including sharing models of best practice. February 2012

Written evidence submitted by Professor Michael Ferguson RESPONSE TO ITEMS 1 AND 2 RELEVANT TO NATIONAL LIFE SCIENCES (BIOMEDICAL) RESEARCH 1. Fundamental Issue: Why does UK Pre-eminence in Academic Life Sciences Research (Biomedical) Not Translate into New Drugs Discovered and Patented in the UK? 1.1 What is early stage drug discovery? Early stage drug discovery is the process of translating ideas for new medicines from basic research into “drug leads” or “pre-clinical drug candidates” ready for licensing to industry, partnering with industry or spinning out into new companies.

1.2 Why should we be doing this in UK Universities? Our universities are a rich source of internationally competitive life sciences discovery and innovation. Independent assessments of Life Sciences research impacts generally rate the UK as second in Europe, just behind Switzerland. Consequently, we sit on a massive bank of potential intellectual property (IP) that has 244 AMRC, Breast Cancer Campaign, British Heart Foundation MORI poll 2011 | www.ipsos-mori.com/researchpublications/ researcharchive/2811/Public-support-for-research-in-the-NHS.aspx [accessed 17 February 2010]. 245 AMRC, Ways & means: How to make research collaboration work, 2010 www.amrc.org.uk/our-members_ways—means [accessed 22 September 2011]. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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been created from taxpayer and medical charity investment. This IP needs to liberated and accelerated towards commercial and therapeutic beneﬁt. A key engine needed to do this is early stage drug discovery.

1.3 Where are the early stage drug discovery units? Until recently, almost all aspects of drug discovery and development had been the exclusive domain of the Pharmaceutical Industry. However, wider availability of technologies has allowed smaller biotechnology or “BioPharma” companies to compete in this market. Indeed, many of the new medicines currently in development were discovered in BioPharma and then sold or licensed to larger companies. This is a good paradigm, but it translates only a tiny fraction of translatable academic life sciences research. Thus, the connectivity between novel drug targets discovered in academia and their development into new drugs by industry has been relatively poorly exploited.

1.4 How can we realise innovation in drug discovery and create jobs and wealth for the UK? Most would accept that here is a National, and moral, imperative to innovate by translating academic IP into the commercial and healthcare sectors. The problem is getting life sciences IP into a state that is an accepted starting point for the commercial sector; ie, ‘drug leads’ or ‘pre-clinical drug candidates’ (see box). This is only done seriously and professionally in a handful of academic centres (notably, by MRC Technology, Cancer Research Technology, Institute of Cancer Research, The University of Dundee) and the capacity and focus of these organisations is woefully insufﬁcient to translate all of the IP opportunities in the UK biomedical arena. Translating basic life sciences research into the commercial sector

Target Assay Screen Hit Lead Optimised Lead

Traditional University Molecules & targets of interest research ends here to the Pharmaceutical sector

IP value

2. The Opportunity Several major Pharma companies (eg. GSK, Pﬁzer, Astra-Zeneca, Johnson & Johnson, Merck-Serono, Sonoﬁ-Aventis) as well as BioPharma development or investment companies (eg Union Life Sciences, Debiopharm, Frontier IP and TPP Global Developments) are looking for innovative and validated therapeutic targets and are actively seeking engagement with academia. Indeed, considerable amounts of company R+D budgets are now being directed that way by their senior management. Recent discussions with all of the above companies have shown that an ideal engagement point is at the stage of targets plus pharmacological lead compound material that provide proof of concept in an animal and/ or tissue model of disease. The value of such a package for out-licensing, partnering or the creation of spin- outs can be very considerable. In brief: — Novel target = no commercial value. — Novel target plus proof-of-concept lead compounds = considerable commercial value. Therefore, to capture the inherent value of its basic Life Sciences research, which is strong across many Universities and their Medical Schools, the UK needs to increase its capacity for early stage drug discovery. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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3. The Proposition The UK University sector needs to be better served for Early Stage Drug Discovery to de-risk its wide portfolio of potential opportunities into a short-list of validated opportunities of serious interest to industry and/ or investors. The expansion of capacity at existing proven centres and the creation of a small number of additional centres (using the skills of those recently lost from major Pharma downsizing in, or withdrawal from, the UK) would achieve this and keep us competitive with the US which is investing massively to solve this “valley of death” between discovery and medical exploitation.

Declaration of Interests I am passionate about the UK not loosing this opportunity to be the best in the world at translating its basic biomedical research (which itself represents an enormous government and charity investment). To realise this vision locally, my colleagues and I created a Drug Discovery Unit at the University of Dundee in 2006 to do exactly that. It has been a palpable success. The potential conﬂict of interest is, therefore, around the fact that I am recommending further national investment in an area where my own institution already holds a leading position. February 2012

Written evidence submitted by Professor Anthony G M Barrett and Professor R Charles Coombes 1. Introduction 1.1 The Coombes and Barrett groups at Imperial College London have a major programme of drug discovery to address the urgent clinical need of treating tamoxifen-resistant breast cancer. 1.2 Breast cancer is the most common cancer in women in the western world, and 80% of breast cancers contain estrogen receptor. Tamoxifen is the standard treatment for endocrine sensitive breast cancer. However, whilst curing 28% of people who are given it as an adjuvant to surgery for primary breast cancer, it is commonly followed by the emergence of resistant cells, despite the fact that these emerging breast cancer cells, which are often in metastatic sites still containing estrogen receptor, the very target of the drug. The new generation of aromatase inhibitors, which act by inhibiting estrogen biosynthesis and thereby preventing estrogen receptor activation and which appear to be more efficacious than Tamoxifen, are also subject to the development of resistance. The National Cancer Institute (USA) noted that in the USA in 2007 there were over 180,000 new cases of breast cancer diagnosed with over 40,000 deaths. The comparable figures for the UK are 44,000 and 12,500 respectively. In 2007, the total numbers of newly diagnosed breast cancer patients in the seven top pharmaceutical markets in the world exceeded 450,000. Breast cancer is the most common cause of all deaths in younger women aged 35–54 years, accounting for 17% of all deaths. The high incidence of breast cancers and the attendant morbidity and mortality are major drivers for the identification of novel drug treatment regimes.

2. Key Questions 2.1 What are the difficulties of funding the commercialisation of research, and how can they be overcome? 2.1.1 Pharmaceutical discovery and the optimisation, development and ultimate commercialisation of new medicines is complex, very expensive and a process that takes at least ten years from concept to first sales. Most drug discovery programmes fail in the pre-clinical stag or later, and at much greater financial losses, in clinical trials. None-the-less there is much unmet medical need and the quest for new medicines to treat these diseases must continue. As stated above, breast cancer is one such disease that causes immense damage to the quality of life to the citizens of the UK and its economy. 2.1.2 Globally drug discovery is rapidly changing. The big pharma companies such as Pfizer, GlaxoSmithKline, AstraZeneca and others are leaving drug discovery rapidly and their exit will be complete in the next five to 10 years, perhaps sooner. The recent closure of Pfizer Sandwich and downsizing of AstraZeneca are not unusual events but are part of the inevitable global process. The trillion-dollar question is whatever next and where will the medicines of the future come from? Will pharmaceutical innovation be totally lost to the UK and the UK pharmaceutical industry, worth many billions to the UK economy, become another smokestack memorial. 2.1.3 The medicines of the future will be discovered in biotech companies, contract research organisations (CROs), laboratories funded by medical charities and a limited number of universities, which assemble the correct integrated teams of scientists and clinicians. The UK now has a very successful biotech and CRO sector including companies such as Biofocus-Galapagos-Argenta and Peakdale Molecular. In addition several universities including Imperial College London are assembling drug discovery and development teams. However, their outputs need to be taken further along the clinical pipeline and ultimately into market. Big- pharma companies, with their new strategies, are only interested in late-stage clinical assets with focus on compounds that have passed successfully through at least phase-2A, proof on concept in patient, trials. The Research Councils and medical charities in the UK such as the Wellcome Trust and Cancer Research UK do cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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not cover the costs of all stages of drug discovery and development to a phase 2A clinical trial. As such there is a potentially catastrophic gap in funding that is disadvantaging pharmaceutical innovation in the UK. Funds that once existed to facilitate spinout companies from UK universities, such as the London Technology Fund, have insufficient resources to cover the gap. 2.1.4 Her Majesty’s Government can best assist in addressing the critical funding gap for the new pharmaceutical industries and parallel academic groups in the UK, by leveraging public recourses with sources of private equity with the offices of organisations such as the London Technology Fund and other regional funds. Although the UK has yet to catch up, there is again considerable appetite in the USA for the funding of early stage drug discovery. A recent example is Warp Drive Bio in Cambridge, MA, USA, which raised a commitment of $125M to fund early stage drug discovery from a consortium of SanofiAventis and 2 venture capital firms, Third Rock Ventures and Greylock Partners.246 2.1.5 It is also germane to note that several USA have been extraordinarily successful in drug discovery including Northwestern University with the blockbuster Lyrica, marketed by Pfizer; Emory University with a portfolio of antiviral drugs Emtriva, Emtricitabine, Epivir, Lamivudine, Reverset, Racivir and Elvucitabine marketed by Gilead and GSK; and Princeton with Alimta marketed by Lilly. All these very valuable innovations were discovered in universities with Federal support from the National Institutes of Health. UK universities including Imperial College have integrated drug discovery teams in place but face the funding gap, preventing realization of medical and commercial value.

2.2 Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? As is stated above, there is a funding gap in pharmaceuticals between the pre-clinical discovery phase and phase 2A clinical trials. It would be a fatal mistake to assume there is a common solution across sectors. For example, the start-up to IPO or trade sale stage for an IT or electronics material company is usually much shorter than the 10 years plus time frame for pharmaceuticals.

2.3 What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? The Coombes and Barrett teams have assembled a portfolio of potential drugs to treat breast and other cancers including their most advanced candidate, BS-194, which is now in late-stage preclinical studies and is now nearly ready to enter phase-1 clinical trials. Both sought to raise money in the UK to take this important compound into man in the UK itself, but these efforts were unsuccessful. As a result, they arranged for clinical trials to be undertaken in the MD Anderson Cancer Center in Houston, Texas. This is especially disappointing, from the UK’s perspective given the fact that Coombes operates one of the most important cancer clinical centres in the UK. In January 2012, Barrett met with venture capital funders in the USA from both California and Massachusetts to discuss the transfer of other drug candidates from the IC group for development in the USA.

2.4 What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? Translational activities from the MRC have been useful in addressing some of the problems in the pharmaceutical arena. However, their remit has not allowed for adequate resourcing with partner organisations in the private sector including venture funds to facilitate adequate return on early stage drug discovery in the UK universities.

2.5 What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? There is not a straightforward answer to this question. It all depends on how the money is actually spent. In the area of pharmaceuticals, the Government should seek advice on how this money is utilised by involving senior scientists and business development managers not from big pharma but from successful biotech and CROs such as such as Biofocus-Galapagos-Argenta and Peakdale Molecular, venture funds with considerable focus on the pharmaceutical arena such as MVM Life Science Partners, as well as reinvigorating regional funds such as the London Technology Fund. The appetite for venture capitalists for early stage pharmaceutical discovery should move across the Atlantic and the Government’s innovation, research and growth strategies could impact to accelerate and amplify the availability of these large funds in the UK.247

2.6 Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? Yes this can be achieved in the pharmaceutical sector with favourably tax and coordinating efforts with medical charities, biotech companies and the Government being aware of funding amplifying possibilities by 246 http://en.sanoﬁ.com/Images/29392_20120110_BIOLAUNCH_en.pdf 247 www.biofocus.com/; www.argentadiscovery.com/; www.peakdale.co.uk/; www.londontechnologyfund.com/; www.mvmlifescience.com/ cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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parallel investments from funds associated with big pharma companies, as they exit drug discovery but still need late stage clinical assets to take to market, as well as venture funds as they move back into early stage pharmaceutical discovery in the UK. Replication of the early US start-ups such as Warp Drive above would be an excellent outcome for the future of the pharmaceutical sector in the UK. Our view is that it is not realistic to expect angels to fund the pharmaceutical sector (or any other capital intensive sectors), even with generous tax breaks. They do not have the resources to keep up with multiple rounds of funding, and therefore—even with successful companies—will be heavily diluted. As a result, angels prefer companies with lower capital requirements and, in order to avoid the risk of failure inherent in start-up and early stage investing, they also prefer growth and other later stage investing.

2.7 What other types of investment or support should the Government develop?

In the pharmaceutical sector, the most important issue is the long time lines. It is crucial that Government support is not one off but continuous for more than a decade. The pharmaceutical industry in the UK has been of immense importance over the last 40 years. Its continued presence in the UK is now very fragile and, with appropriate support, could remain a main sector in the UK for the next 40 years.

3. Declaration of Interests

Barrett is the one of the founders of Argenta Discovery, which is now part of Biofocus-Galapagos-Argenta. He no longer has any material involvement in the company. He is on the Scientiﬁc Advisory Board of the London Technology Fund. Barrett is a co-founder and shareholder of Pulmagen Therapeutics, a company in the MVM Life Science Partners portfolio. Coombes is a shareholder of Pulmagen Therapeutics.248 February 2012

Written evidence submitted by Sir Gregory Winter FRS (Valley 95)

The Valley of Death is the result of a selection process in which the unﬁt are weeded out. It is entirely normal and necessary. If we want more research to make its way across the Valley of Death into industry, we can: (a) increase the amount and quality of the research generally; and/or (b) focus on research thought likely to lead to translational opportunities; and/or (c) prepare research for commercialisation before it struggles through the Valley of Death.

I do not propose to discuss (a) or (b), except to comment that it is often not obvious which research will lead to translational opportunities, especially if there is a paradigm shift. I will therefore focus on some aspects of (c).

The Problem

A major problem is that we entrust all these processes to the same organizations; Universities and Research Councils have become responsible for the entire sweep of research through to its translation. However these are rather different processes requiring different skills. In particular the act of preparing work for commercialization requires commercial skills. It can fail for many reasons, most of which are commercial. Thus the research may be too early for translation; insufﬁcient funding; wrong goals; lack of business plan; poor management….

The Universities and Research Councils do recognize the different skill sets required, and use specialized technology transfer offices (TTOs). However the influence of the parent organizations is evident from the TTO focus on early surrogate markers of commercialization, such as number of patents filed, number of companies started and number of licensing deals, rather than the commercial bottom line, revenues generated, profit (or loss) on these activities and/or local jobs created. Indeed the monopoly of the TTOs, the use of early surrogate markers of commercialization and the lack of a profit motive can lead to a bureaucratic attitude. It is common complaint by Industry and individual researchers that TTOs more often hinder than help; researchers and industry would often rather deal with each other direct.

Researchers are also not entirely blameless. Some researchers do not see patents as commercial documents to support a business goal, but as priority documents for their research, or as a statistic to be collected, akin to numbers of conferences attended as plenary speaker, numbers of papers published or cited, or impact factors. In this case, the pressure on TTOs from researchers to patent their research can become intense; it is more difﬁcult to resist if both are members of the same organization that values surrogate markers. In fact there are relatively few patents that will be commercially successful. 248 www.mvmlifescience.com/portfolio/detail.asp?pid=6 cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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A Solution

I suggest that Universities and the Research Councils should focus on commissioning and evaluating research, whether pure or applied (processes and a and b above). I suggest that translation (process c) should be left to independent commercial organizations and to the researchers.

Detail

I shall call these organizations technology exploitation companies (TECs). These would take over much of the work of the current TTOs of the Research Councils and Universities, which would no longer be subsidized by Government funding.

The TECs could be spun out from the existing TTOs or created independently. Funding would come directly and indirectly from Government and the private sector with equity held by each; additional non-dilutive Government funding could be used to drive large strategic investments in key areas. The TECs would be licensed by the Government to work with academia and would have to meet some standard conditions (eg use of standard MTAs, CDAs, agreed formula for rewards to inventors, Research Councils and Universities) to ensure a level playing field. The TECs would otherwise be entirely commercial organizations, competing with each other for market share. Ideally the TECs would not have a monopoly on the research from any University or Research Council, although there may be a case for allowing individual researchers or Departments to conclude three to five year first-option deals with a TEC with whom they have developed a productive relationship.

I am not proposing that we reinvent the NRDC. This was a state monopoly in which individuals, Universities and Research Councils had no share in profits and income; I am proposing a market with competing TECs in which all participating parties would have a share of profits and income. Researchers who were not satisfied with one TEC could turn to another, or use TECs that are specialized in their area rather than the “one-size- fits-all” TTO monopolies.

In due course the shape of these TECs could change. Some would be listed on the LSE or AIM and their shares traded; others might provide participants with shares in the spin-off companies or in royalty streams. Alternatively a TEC might spin off its technology exploitation activities and restructure itself to manage the companies it had already created.

The private equity could be driven by tax breaks. Given the risky nature, it would be necessary to be generous to investors, at least until the TEC market was well established. For example investors could be offered full tax relief on income or capital gains when ﬁrst invested in a TEC, no taxation of gains or dividends from TEC shares, and ability to offset losses in a TEC against other gains. If generous enough, it might not be necessary for the Government to make additional contributions in return an equity stake. The danger that TECs would be used to front tax avoidance schemes could be limited by a requirement that TECs would have to be licensed by the Government. If successful the Government would get paid from sale of its equity in the TECs, fees for licensing of TECs, and income from tax receipts from successful companies and new jobs.

TECs should not have a monopoly over translation; so any individual or Department or University would not be compelled to use a TEC, and could deal directly with angel investors. However the TEC structure could also provide an attractive route for angel investors to invest in translation due to the tax breaks, particularly if the TECs could ring-fence investments for individual projects. In turn the angel investors would help to bring good business opportunities to the TECs. Likewise with suitable tax treatment, large companies might be motivated to invest in projects through the TECs. Indeed some TECs might specialize in such arrangements.

The setting up of TECs would not only encourage investors and business to take more of an interest on what is going on in Universities, and facilitate and strengthen local enterprise clusters, but it would help bring in good management. In particular we need to encourage the vibrant and risk-taking management culture of the US.

In summary, I suggest we get technology transfer out of the hands of bureaucracies, Universities, Research Council, the Government (and the EU!) into the private sector. By providing sufﬁciently generous tax breaks for investors the Government could create a new market and leave it to the private sector to create what in the end will be private sector companies and jobs. January 2013 cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Written evidence submitted by ADS (V76) About ADS ADS is the trade organisation advancing the UK Aerospace, Defence, Security and Space industries. Farnborough International Limited (FIL), which runs the Farnborough International Airshow, is a wholly- owned subsidiary. ADS has ofﬁces in England, Scotland, Northern Ireland, France, the Middle East and India. ADS comprises over 900 member companies within the industries it represents, of which over 850 are small and medium enterprises (SMEs). Together with its regional partners, ADS represents over 2,600 companies across the UK supply chain. ADS also supports SC21, Sustainable Aviation, Defence Industries Council, RISC, Defence Matters and hosts the Aerospace & Defence Knowledge Transfer Network.

Background Investment in Science and Research today will ensure that the UK maintains its cutting edge capabilities in the Aerospace, Defence, Security and Space industries in the decades beyond. — Investment in Science and Research has made the UK the largest Aerospace sector in Europe and the second largest in the world after the USA. (17% market share), and worth over £23 billion. to the UK, of which £16 billion. (70%) is exported world-wide. The sector directly employs nearly 100,000 people in the UK, and supports a workforce of around 360,000. Total R&D in 2010 amounted to £1.7 billion, more than 7% of annual turnover. — The Defence Industry employs 314,000 people in the UK—directly and through the supply chain. The industry is highly skilled, with 59% of workers holding a university degree or equivalent. The industry invests 8% of annual sales revenue in research and development— amongst the highest in industrial sectors. — Around 450 companies within the membership of ADS are engaged in growing Security, resilience and policing markets, at home and overseas, for which there are many interfaces with UK Government, the police service, the other emergency services and operators of the Critical National Infrastructure (CNI). Security-related SMEs maintain a heavy focus on upper tier technologies and comprise 93% of the ADS membership. A recent survey completed by ADS found that its members generated around £2 billion worth of business in the UK security market during 2010. — The UK Space industry recorded a total turnover of over £7.5 billion. in 2008–09. This represented a real growth of 8% since 2007–08—the UK sector expects to grow 10% each year. The sector is strong in areas such as satellite communications and satellite navigation, and well placed to capitalise on new emerging services derived from Earth Observation, Cyber Security, Cubesats, and Broadband Services. The global market is anticipated to continue to grow at a robust rate of 5% on average in the next decade.

1. What are the difﬁculties of funding the commercialisation of research, and how can they be overcome? 1.1 The long technology development cycle within the four industries ADS represents means they have a necessity for a balanced portfolio of Research and Development (R&D) at all times. The development of technologies is iterative and achieved by evolution rather than a series of separate discoveries, so research continuity and funding stability are essential. 1.2 Research in defence is falling. The UK Government spend on Research and Development is less than half the level it was ﬁfteen years ago. This, coupled with a loss in funding from agencies, like RDAs has created a sense of uncertainty within industry and does not incentivise the private sector to continue its own investments. Industry welcomes the Government’s decision to halt this decline and sustain investment in Science and Technology at a minimum of 1.2% of the defence budget, announced in the “National Security through Technology” White Paper. The Government must now work to reverse this trend to prevent our position in the export markets weakening. 1.3 ADS members are already successfully engaging with some excellent Technology and Innovation Centres, recently launched as Catapult Centres. The concern here is that while future new centres are considered, high-performing existing ones need to be supported. A comprehensive mapping of what the UK has already is necessary and ADS does not believe this has been done. 1.3.1 Industry welcomes the Catapult Centres and ADS believes that industry involvement with them from an early stage, is essential. From inception, Catapults must work with large businesses (who often have the best understanding of market demand) to pull through the best research to meet their needs. 1.3.2 Over 850 of ADS’s members are SMEs, some of which are highly innovative, and funding for the commercialisation of their research is vital. A barrier that often disincentivises industrial participation, disproportionately affecting smaller companies is the overly bureaucratic cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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processes, particularly in applying for funding. Catapults should play both a direct and indirect role in supporting the UK in assessing European R&D support. 1.4 The Centre for Defence Enterprise (CDE) has proved effective at bringing in new ideas and providing them with seed corn funding, but there is little evidence so far of exploitation into products. Efforts should be made to achieve downstream exploitation by bringing in companies that may provide exploitation funding at an early stage in the process. 1.4.1 Award of CDE funds to an SME should include a commitment to pitch the idea to Primes and CDE should be measured on its ability to stimulate ideas which then become attractive to industry to fund. 1.4.2 Trade bodies could be encouraged to work with CDE on engaging with companies in receipt of CDE support to see whether they can help companies develop beyond the seedcorn phase and attract development funding. ADS has discussed the idea in principle with banks of bringing together with industry expertise to help provide potential lenders with better assessment of the risks and thereby facilitate exploitation; ADS would welcome further discussion on this aspect.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors? 2.1 In the export-led Defence sector, Government has to decide whether the UK is simply going to buy from the global market or whether it can and should stimulate an industrial base to generate the required technological capabilities. The Catapult programme should ensure that key strategic capabilities remain indigenous in the UK and the MOD now needs to clearly define its priorities so that necessary future R&D can be understood. Only this will give Industry the confidence to invest. Joint planning for the technology development between Government and Industry is the best way forward to ensure investment is complementary and not duplicative and delivers the confidence needed to both sides. ADS looks forward to the publication of the MOD’s ten year equipment plan later this year. 2.2 In the Aerospace sector, the long term returns from R&D make it an unattractive capital market investment and so Government intervention is key. The failure of the capital market is exacerbated by international market skewing, where other nations including France, Germany and the USA, are specifically backing their Aerospace Industries with R&D support. Such nations have recognised the growing market and the long term economic benefits of a strong national Aerospace Industry. Future market predictions estimate a £352 billion return between now and 2029 for the UK if it maintains its 17% global aerospace market share. 2.3 Some of the most successful advanced manufacturing technology programmes that have delivered innovation and growth through the supply chain have been regionally supported. With the demise of the RDAs and no assurance that funding for their innovation activities is to be retained, there is risk that these value-add innovative projects will evaporate. ADS has led a federation of Regional Trade Alliances to deliver a range of technology development and exploitation projects at the regional and local supply chain level, through a programme vying for Regional Growth Fund support. The ENTASC will be a nationally supported, regionally delivered programme, which will embed a variety of high value and advance engineering technological capabilities into SMEs, enabling them to achieve growth in sectors such as aerospace, defence, automotive and energy.

3. What if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur? 3.1 There has been an erosion of the Aerodynamics research capability in the UK. Unlike in France and Germany, whose Aerospace research centres conduct industry-relevant research to the benefit of industry but at little or no cost to those companies, the UK is reliant on Universities and Research and Technology Organisations (RTOs), working separately with no overall coordination. These Centres influence EU research priorities within the Framework Programme (FP7) and draw down funding once it becomes available—all to the benefit of their national Aerospace industries. The French and German aforementioned centres have therefore been able to build their respective countries’ Aerodynamics capability, making them much more attractive to global business. There is a genuine risk that future wing design and therefore manufacture, will move to these nations for future generation aircraft. 3.2 ADS is working through the Aerospace Growth Partnership (AGP) process to define an Aerodynamics centre for the UK. Having a stronger European voice will enable the UK to act as a beacon for large scale European Technology Demonstrators as well as European Research Infrastructure and enable UK industry to capitalise on the globalised market as is already happening in France and Germany.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research? 4.1 ADS is concerned that the Technology Strategy Board model is becoming increasingly unﬁt for the Industries we represent, in particular Aerospace. ADS welcomes the Government’s recognition of the need to develop the entire Innovation Ecosystem; however this may be undermined by discrepancies in funding levels. cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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Whereas Research Councils receive £3.5 billion per year, the TSB only receives £500 million: £300 million in direct funding and £200 million funding for Catapults. The value placed on knowledge creation therefore is greatly welcomed however this should not be to the detriment of knowledge exploitation, a critical part of the process that the TSB should provide. 4.2 Technology Demonstrators are an effective route to maturing and exploiting R&D, enabling the thousands of discrete parts of the supply to come together in order to integrate and demonstrate these technologies at the systems level. They allow a fair and transparent partnership with mutual beneﬁts for all concerned; SMEs develop their technologies quicker, gain exposure through showcasing their capabilities and assimilate invaluable knowledge of the sector; systems integrators are able to integrate those into products that meet market demand; and critical mass is formed through a truly multidisciplinary approach. 4.2.1 ADS therefore welcomes the £25 million investment in Technology Demonstrators announced in the Government’s Autumn Statement 2011 however looks to the Government for future clariﬁcation on which Industries will be set to gain from this investment.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death? 5.1 ADS welcomes Govt commitment to ring fence Science investment but is concerned about the impact on our industries of what constitutes a 5–6% cut in real terms over the CSR period. This is in stark contrast to the US where the Administration is seeking an annual budget for the National Science Foundation in 2012 that is 13% higher in cash terms that the 2010 figure. This is compared to the UK science budget which will be 6.7% lower in cash terms in 2012–13 compared with 2010–11 5.1.1 Science investment needs to be supported as part of the wider innovation climate, whereby base research can be efficiently brought to exploitation. This is best done by aligning research with national strategies such as NATS (National Aerospace Technology Strategy), which has been a successful partnership between Government, Industry and Academia, transitioning research into technology demonstrators and through to products that bring economic growth, exports and sustains jobs in the UK. 5.2 Similarly, ADS welcomes the Catapults launched to date and looks forward to engaging with further centres as they emerge. 5.2.1 Some very hard decisions will need to be taken to ensure that Catapults are supported at a critical mass, so that they are effective. Spreading investment too thinly is not going to create any critical mass of activity, and the activity will fail. 5.2.2 Strong coordination will be needed to ensure that Catapults not only avoid duplicating work that is going on elsewhere, but also influence those research and innovations streams to ensure maximum pull through and therefore business and economic impact. A governance structure which allows this nature of interaction needs to be established. Catapults cannot become independent commercial operations and must link in with other parts of the innovation system. 5.2.3 ADS strongly endorses that the Centres need to evolve to financially sustainable business models. However, the TSB should recognise that some Government money will always be necessary to make Catapults successful. Attempts to make them financially sustainable within too short a time window will encourage them to focus on the types of activities that are going to generate short term income, rather than on delivering long term targets. 5.2.4 Catapults need to operate flexibly and innovatively so that SMEs can engage at any point in the process. Large companies will sign up from the inception of a ten year programme, SMEs will not. This flexibility of approach will enable supply chain companies in particular to diversify into multiple sectors; the main effect of spill-over is at the lower end of the supply chain, where technology advances and process improvements filter down and are available for use in the range of sectors beyond those in which they were developed. 5.3 The Government has recognised the need to develop the Innovation Ecosystem as a whole rather than a set of separate interventions and, in the Aviation sector, Industry is working with the Government through the Aerospace Growth Partnership to identify not just the sector’s technology and innovation needs but broader requirements too.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved? 6.1 ADS believes that at a time of ﬁnancial constraint, it is all the more important for investment in research to be focussed on the right areas and effectively pulled through. One of the features of the advanced engineering sectors ADS represents is the very strong interaction between public and private investment. Industrial R&D is made possible and multiplied by public funding research and innovation. Cuts in public funding for research gives the private-sector less conﬁdence also to invest which will ultimately hurt UK economic growth, exports and jobs. cobber Pack: U PL: COE1 [O] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

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6.2 Catapults will play an important role in fostering international technology partnerships and will be increasingly prevalent in paving the way for exports. In order to attract additional funding and de-risk some of the investments that others make, the Centres need central core funding from Government and have long-term ﬁnancial stability. 6.3 ADS would suggest that Government consult with the private equity sector to gain a deeper understanding of the incentives that would encourage investment in the science and engineering sector, however at the outset, it is likely that tax breaks for such investments and reduced capital gains tax on returns should be considered as a ﬁrst step. 6.4 Critically, the Government must work to help businesses, particularly SMEs access European R&D funding. The new Horizon 2020 programme addresses many bureaucracy and relevance issues but businesses have become increasingly disenfranchised throughout FP7 and previous Frameworks until now. Government has a role to play in reversing this trend and providing the necessary support for businesses to exploit European funding as it becomes available.

7. What other types of investment or support should the Government develop? 7.1 The sectors that ADS represents are primarily affected by the changes in the Engineering and Physical Sciences Research Council (EPSRC) budget. To ensure the future success of its sectors, ADS believes that spending on Science and Research has to increase in the long-term. Despite financial pressures, the long-term nature of research necessitates a growth plan that spans multiple parliaments. The current freeze is in effect a real-term cut at a time when Science spending plans of similarly developed countries are rising. 7.2 ADS is also concerned that with the existing degree of uncertainty and real-term cuts, it will be difficult to attract students to Science, Technology, Engineering and Mathematics (STEM) subjects. This could play out as a vicious circle which erodes the science base—making the UK a much less attractive place to invest for global businesses. 7.3. ADS recommends that Government consider funding for long-term, large collaborative Centres. This would be an efficient way of using resources. A good example is the Advanced Simulation Research Centre (ASRC) in the South West that brings together industry and academia around strategically important, exploitation driven, multidisciplinary research, that benefits multiple sectors eg rail, marine, aerospace, wind energy in the case of ASRC. 7.4 Through a range of regional and national programmes and investments, such as the Autonomous Systems Technology Related Airborne Evaluation & Assessment (ASTRAEA) in the aerospace sector and Systems Engineering for Autonomous Systems Defence Technology Centre (SEAS DTC) in the defence environment, the UK has a global lead in terms of technical capability in developing and deploying autonomous systems. Pockets and clusters of excellence exist, comprising the knowledge and skills to both develop and exploit these technologies. A business-focussed Catapult in this area will enable a coordinated approach to investment in innovation. Moreover, an Unmanned Air Systems (UAS) Catapult will ensure that promising research is transitioned through the “valley of death” to realise its wealth-creating potential. February 2012

Written evidence submitted by Professor William O’Neill Summary The cluster of research and technology activities in Cambridge and the surrounding area has a strong track record in both invention and innovation. The Centre for Advance Manufacturing aims to bring to the cluster an element that has been largely absent until now, in order to enhance both research efforts and the likelihood of their successful commercialisation. Translational research and development has been widely recognised as of vital importance to ensuring that the UK gains a wealth creation dividend from investment in science. However, the importance of parallel research and development in the supportive manufacturing sphere has, until recently, received less attention. Now, the United States, in particular, is starting to redress this imbalance and has analysed the crucial interdependencies and alignment issues between “technology readiness” and “manufacturing readiness”.249 For some inventions, for instance in the material sciences, manufacturability has remained a constraining challenge for years after the invention’s market potential has been recognised. These, wasteful, fallow years could have been foreshortened if the manufacturing research and development effort had been mobilised sooner. It is this missing role in the innovation eco-system which the Centre for Advance Manufacturing seeks to play. To do so effectively, the Centre needs to co-locate as closely as possible with the research groups from which the breakthrough inventions are emerging. But, in the Cambridge area it can also give an added growth impetus to research-rich SMEs in the high tech cluster and the major ﬁrms with which they and research teams in the university and research institutes have close links. The Centre can. 249 Note by Dr Eoin O’Sullivan to follow cobber Pack: U PL: COE1 [E] Processed: [11-03-2013 14:07] Job: 021047 Unit: PG01 Source: /MILES/PKU/INPUT/021047/021047_w069_steve_PValley 96 William O'Niell.xml

Ev w202 Science and Technology Committee: Evidence

— Enable researchers to move their alpha-level advanced manufacturing technologies from University and company laboratories to a larger space for scaling to beta-level testing and development with companies. — Enable access to advanced manufacturing technology for growing companies to assist them in their commercial growth and accelerate their product development. — Build Cambridge area capabilities in advanced manufacturing to enhance equipment, product, process innovation, and development from within the region.

Description The purpose of the CAM would be to accelerate the development and deployment of next generation manufacturing technologies and their application in the creation of new products and the growth of companies. The Centre would provide the facilities and opportunities for university, corporate and government laboratory researchers, university and laboratory spinout and other companies to extend their technical capabilities and advance their production/product offerings. The following are key summary points describing the Centre. The value proposition for the Centre would be the provision of a facility with scale-up space for advanced manufacturing technologies, access to advanced pre-commercial manufacturing technologies for growing companies with limited abilities or capital for development of such systems within their commercial environment, access to specialist venture capital, potential customers, and business development services. There would be two targeted user groups—1) developers of advanced manufacturing technology in need of a facility for scaling their alpha-level technology to beta-level and 2) companies in need of access to advanced manufacturing technologies for their product development and commercialization. Sources of revenue would include grants, corporate investments, government support, time-share fees, company and technology equity, vendor contributions, and technology licensing. The Centre for Advanced Manufacturing would likely have advanced manufacturing technologies that are set to establish the production capabilities of future 21st century products including: reel to reel electronic production technologies; laser fabrication technologies; additive manufacturing systems; nano-scale direct write technologies; photonic systems technologies; novel materials fabrication routes; and device fabrication suitable for such next generation products as polymer electronics, medical devices, flexible displays, communication devices, bio-electronic systems, and electronic paper etc. There are, of course analogies between this concept and the thinking behind the Catapult centres. However, the Cambridge cluster already faces several highly distinctive manufacturing challenges: for instance in relation to new electronic and photonic materials such as graphene and carbon nanotubes; the need to establish low cost high volume reel to reel production of polymer based electronic systems; ultra-high resolution nano fabrication technologies for a new generation of genomic devices; in addition to many other breakthrough technologies in healthcare, communications, energy generation, biotechnologies and defence. Co-location with the top-rated academic research groups will help remove the challenges inherent in transition from one TR level to another. As the diagram illustrates, the academic scientists and engineers will be encouraged and assisted to extend further into considerations of manufacturability whilst, at the same time, work within the Centre will be enabled actively to feed ideas back into the academic research teams. Moreover, in UK terms, Cambridge has a unique community of high tech firms and, in particular, a number of technology development consultancies which have acquired international reputations. These in turn have established relationships with major global firms. Through these networks market signals will be transmitted into the Centre’s activities from a number of diverse business perspectives and help to ensure that the Centre is configures its activities both to current needs and new, emerging challenges. November 2012

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