Examination of witness (Questions 420 - 439)
WEDNESDAY 11 NOVEMBER 1998
MR MARTIN
SANDFORD
420. And how do you maintain your own expertise?
(Mr Sandford) Firstly by the nature of the people
we recruit in terms of the range of technical backgrounds.
421. How much turnover of staff because obviously—
(Mr Sandford) Some, but not very great, but we have
expanded in all of the areas in the recent past, the last couple
of years. Plus, because we are either going out and talking to
or responding to academics, we do tend to stay up with where they
are in their particular research areas.
422. From your knowledge of the way in which
we are exploiting the science base, do you see that there are
any gaps or any improvements that could be made?
(Mr Sandford) Honestly no, not obviously.
423. You think everything is working very well.
(Mr Sandford) In the paper I wrote in March I indicated
that the riskiest area of commercialisation of research, which
is new technology addressing new markets, and its uptake by small
and medium-sized companies, is the combination that is least likely
to happen and therefore, if one could identify where those opportunities
were, then refocusing funds into that area might have the most
effect.
424. You said a few moments ago that funding
arrangements were easier to set up for inventions in the biosciences
rather than in the physical engineering base sciences. What would
you say are the reasons for that and how do you think that it
could be improved in relation to engineering sciences, that is
if you like looking at it from the potential funders or exploiters?
What about the attitudes also of the scientists themselves? Do
you find there is a difference in attitude between the different
disciplines in commercialisation of their work?
(Mr Sandford) Difficult to answer, but I will have
a go. I do mainly see it as a difference in the way the sectors
are perceived by providers of funds, meaning venture capitalists
generally and institutional investors, and it is real because
a successful drug, for instance, is potentially huge, profit margins
are huge. All right, there are lots of risks along the way so
that ultimately the combination of profitability and risk probably
comes back to about the same thing. A parallel from our world,
licensing; you can address the whole of the world demand for a
particular product through one company. If you try and do that
in engineering companies and you are going to be licensing hundreds
of them, so in the end the target market is much more difficult
to identify.
425. What sort of cut do you take?
(Mr Sandford) We take 50 percent of what we generate.
426. It is not subject to negotiation?
(Mr Sandford) In the exception, yes, but to put that
in context though, if we take something on we bear all of the
initial financial risk so that we will file the patents, we will
prosecute within the various territories, and that means that
we are taking on, on each patent tens of thousands of pounds of
expenditure in the early years and up to, we estimate, a quarter
of a million pounds per patent over the patent life.
427. It is no win, no fee?
(Mr Sandford) Yes.
Chairman
428. Mr Sandford, if you are taking on the risk
in the initial stages, does that make you over-cautious and therefore
with a tendency not to meddle or get your fingers burnt on something
that could be a high risk and yet some of the high risks could
actually be high rewards at the end of the day. My question, and
I am sure you get the thrust of it, is are there some very good
inventions which could be high-risk, high-reward which are being
ignored by you because you do not take flyers?
(Mr Sandford) This is bound to be a risk, but I do
not actually think it happens that way. What I think we will exclude
is high-risk, potentially low-return inventions. We are highly
focused; we have to be because if we do not make money we will
not survive, so that is the internal discipline.
429. Like a good bookmaker—and I am not
suggesting you are a bookmaker—do you have a way of laying
off some of the things that you think could be interesting but
not for you?
(Mr Sandford) Well in some senses, yes. Let me deal
with that in a second. What we need for our business is to get
a balanced portfolio of items which are short, medium and long
term revenue prospects and that means we will always, if we think
something has really great potential but it is going to be a long
haul, we want those in our portfolio as well as the slightly more
sure fire success which is slightly shorter term. As to laying
off, and I can think of some instances where we have pursued something
because we thought it was very good where we have drawn a complete
blank with major companies in that particular industry and where
subsequently we have come across a venture capitalist who shares
our vision and is prepared to take it to the next stage, to the
point where it becomes interesting to, or a potential irritant
to, a major company.
Chairman: Final question from Dr Jones
before we go to Mr Beard.
Dr Jones
430. In relation to your work abroad, do you
have people coming to you from the United States or Japan wanting
to help you with their intellectual property rights or is your
work primarily taking inventions from this country for funding
and exploitation abroad?
(Mr Sandford) It is a mix.
431. So what sort of organisations in the United
States are coming to BTG rather than to similar organisations
there? What have you got that they have not got in Massachusetts?
It is quite an interesting point?
(Mr Sandford) Okay, which companies would include
DuPont Merck, American Cyanamid, Grumman, Lucent.
432. Why are they choosing to go to you?
(Mr Sandford) A number of reasons. Firstly, if they
offer us a portfolio of technology generally protected by patent,
we will go through it and see what we think is of value. We are
not arrogant enough to think we do not make mistakes, but if we
have gone through their portfolio and have found nothing of value,
then if they were about to throw the patents out they would probably
do so with less worry if we have said we cannot find anything.
If, however, we find something it will generally be in an area
that they are not now interested in, so we will be generating
revenue that they would not have generated. Admittedly they get
only 50 percent of it, but it is 50 percent of something rather
than 100 percent of nothing, which is what they were looking at
in the past. There is another aspect to it which is that we are
not a manufacturer, therefore we are not a threat to any of the
potential licensees. It means that companies are prepared to talk
to us about their product plans, their strategies in a way that
they would probably not be prepared to talk to a competitor and
in some instances it would be wrong for them to talk to a competitor
about. Also, where they have licensing operations within those
companies they do not cover as wide a spread as we do, so if there
are applications of technology outside their core area—the
same technology, but different industries—we offer a route
to generating revenue from that without them having to recruit
people in areas which are not generally of interest to them.
433. And there are other companies doing the
same sort of thing as you?
(Mr Sandford) There are.
434. Who is doing the same sort of thing in
the United States as you, would you say?
(Mr Sandford) I think it is CTI and Research Corporation,
they are two, but nobody does it quite the way we do which is
with the depth of resources in-house.
435. Do those companies operate in this country,
CTI and Research Corporation?
(Mr Sandford) Research Corporation did for a time
in combination with 3I, but they shut down their operation and
folded it into Impel.
Mr Beard
436. It is a regular saying, invented in Britain
and developed elsewhere; why has that gained currency, do you
believe?
(Mr Sandford) I suppose because 90 percent of world
markets or more are not in the United Kingdom.
437. Does that stop it being developed in the
United Kingdom? What I am referring to is a thing which has been
developed academically in the United Kingdom but British industry
has not taken up but someone else has. That is what I am referring
to?
(Mr Sandford) Yes. It may be actually part of the
same thing rather than an explanation, but I think there are occasions
where there is not a British company which is involved in this
particular aspect of science or technology and there may be very
good reasons for that. One example—and I hesitate to use
an example off the cuff, because I have not really thought this
one through—but for instance, dyes. For an awful long time
dyes and pigments were very much a sort of German industry plus
a bit of ICI, but all of the leading research, I think, was being
exploited in Germany wherever it came from. Now the balance of
industry between the nations would have had to have changed for
the balance of take-up—and I do not know whether there was
any, but if there had been—British research into pigments
to be taken up in Britain.
438. That is a very specific one, but we are
looking at the potential reasons why we have been so weak in developing
our engineering and physical science inventions. Would you say
it applies over as wide a field as that and if not what are the
barriers? Why are there barriers there?
(Mr Sandford) I think the honest answer is I am not
sure, I do not know.
Chairman
439. Would it be anything to do with investment
money?
(Mr Sandford) It could be. I was thinking, if you
like, why have we got some of the leading drug and chemical companies
in the United Kingdom and not companies that absorb all or the
best of engineering research. One explanation would be, again,
the size of the companies involved. For instance, GE in the United
States is a huge organisation; is General Electric in the United
Kingdom as receptive to picking up things which would be within
physical sciences and not necessarily engineering, but I do not
know; that really is thinking aloud.
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