House of Commons Science and Technology Committee Bridging the valley of death: improving the commercialisation of research Eighth Report of Session 2012–13 Report, together with formal minutes, oral and written evidence Additional written evidence is contained in Volume II, available on the Committee website at www.parliament.uk/science Ordered by the House of Commons to be printed 4 March 2013 HC 348 [Incorporating HC 1936-i and ii, Session 2010–12] Published on 13 March 2013 by authority of the House of Commons London: The Stationery Office Limited £24.50 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]. Bridging the valley of death: improving the commercialisation of research 1 Contents Report Page Summary 3 1 Introduction 5 Background 5 The inquiry 6 2 Innovation and the “valley of death” 8 The Linear Model of Innovation 9 The Innovation ecosystem 10 Access to money and equipment 12 Picking winners 12 Finding the cash to do business 13 Getting access to the necessary technology 17 Creating the right environment 20 Incentivising R&D activity 20 Intellectual property 25 Evidence based policy 29 3 Connecting science with industry 31 Technology Strategy Board 31 Funding 31 Effectiveness 33 The need for local knowledge 34 Leveraging our research establishments 36 The value of universities 36 Realising the benefits of universities 38 Public Sector Research Establishments 40 4 Government as a lead customer 43 Small Business Research Initiative 45 National Health Service 47 Support for sectors of industry 49 5 Conclusions 54 Conclusions and recommendations 55 Formal Minutes 61 Witnesses 62 List of printed written evidence 63 2 Bridging the valley of death: improving the commercialisation of research List of additional written evidence 64 List of Reports from the Committee during the current Parliament 66 Bridging the valley of death: improving the commercialisation of research 3 Summary There exists the concept of a valley of death that prevents the progress of science from the laboratory bench to the point where it provides the basis of a commercially successful business or product. The future success of the UK economy has been linked to the success of translating a world class science base to generate new businesses with the consequent generation of UK jobs and wealth. For decades Governments have sought to promote technological innovation and ensure that the UK benefits from its world class science base. The current Government has made several changes to the innovation landscape and therefore we considered this an opportune moment to consider whether government policy was moving in a positive direction. A troubling feature of technology companies in the UK is how many are acquired by foreign owners where the subsequent jobs and wealth are generated outside the UK. Evidence to the Committee indicated that there are several reasons for this. These businesses take time to develop and to become profitable in an environment where financing is focussing more on quick returns and on less risky investments. We consider it key that the Government ensure that sufficient capital is available and recommend that the proposed bank for business, possibly in partnership with the Business Growth Fund, be used to promote a bond market for medium sized businesses, thus providing growing small businesses with an additional source of funding. We also recommend that the Government investigate the potential to require funds to have a proportion of European SME equities. We consider it important that investors have a better understanding about technology investments and that the Government ensure that investors have ready access to information that would encourage their interest in technology based investments. The amount of information available would, in our view, be improved by the restoration of both the R&D Scoreboard and Bank of England monitoring on the availability of finance to SMEs. The broader fiscal context is extremely important, especially for smaller companies. We considered that there needs to be a mechanism to support SME's who do disproportionately badly from the current R&D tax credit scheme. Indeed the Government needs to distinguish in its innovation policy between small and medium enterprises: a single SME category is too broad. We had some concerns that VAT might in some cases hinder commercialisation activity and urge the Government to iron out any such issues. The Technology Strategy Board is becoming the focus for government innovation policy and we considered the portfolio of funding mechanisms and facilities available for them to support innovation and growth. We were concerned about the access of small firms to large scale test and experimental production facilities. We considered that the Technology Strategy Board and other commercialisation activities needed to ensure projects were properly supported in issues of manufacturing capability. We recommended that Government consider how they can resource the TSB to provide local level advice to technology businesses. The Small Business Research Initiative (SBRI) and the SMART Award scheme would appear to be successful initiatives but lack sufficient funds to meet 4 Bridging the valley of death: improving the commercialisation of research the demand from companies. We consider it vital that the Catapults are made to work but have concerns that they may be pushed to become self-financing too quickly. We recommend that that TSB produce a review of regulatory burdens on technological innovation in the UK that includes a roadmap of how that regulatory reform might be used to drive innovation and which institutions should take the lead. While our academic research is the jewel in the crown of UK innovation activity, we have some concerns about how universities interact with the commercialisation of research. We would like to see how well changes to the Higher Education Innovation Fund improve commercialisation activity; whether there is a need for greater amounts of proof of concept funding in the sector; and challenge the institutions to become more accommodating to non-traditional backgrounds among their academic staff. We have concerns that driving an innovation agenda too aggressively through universities may have diminishing returns with regard to commercialisation and risk damaging the academic research that is working well. It is crucial that the Government has a coherent plan on how to engage the research base (people, facilities and intellectual property) with the innovation agenda. The Government’s objective should be to create a commercial demand for university engagement to which they are already primed to respond. The Government’s ambition to increase innovation activity will depend on its willingness to engage and speculate in that activity. A key feature of that speculation should be leading the way by investing in small technology businesses through its procurement policy. The Government will need to upskill its staff on how to better exploit government procurement