UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1936-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Science and Technology Committee

Bridging the "valley of death": improving the commercialisation of research

Wednesday 18 April 2012

Professor Luke Georghiou, Dr PauL Nightingale, David Connell and Dr Douglas RobERTSON

Dr Ted Bianco, Dr ian Tomlinson, Dr David Tapolczay, Dr Gareth Goodier and Dr Andy Richards

Evidence heard in Public Questions 1 - 45

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Science and Technology Committee

on Wednesday 18 April 2012

Members present:

Andrew Miller (Chair)

Caroline Dinenage

Gareth Johnson

Stephen Metcalfe

Stephen Mosley

Pamela Nash

Sarah Newton

Graham Stringer

Hywel Williams

Roger Williams

________________

Examination of Witnesses

Witnesses: Professor Luke Georghiou, Vice-President (Research and Innovation), University of Manchester, and Professor of Science and Technology Policy and Management, Manchester Institute of Innovation Research, Manchester Business School, Dr Paul Nightingale, Deputy Director, Science and Technology Policy Research, University of Sussex (SPRU), and Exeter Business School, David Connell, Co-Founder, TTP Ventures, and Senior Research Fellow, Centre for Business Research/UK Innovation Research Centre, Judge Business School, University of Cambridge, and Dr Douglas Robertson, Chair, PraxisUnico, and Director of Research and Enterprise Services, Newcastle University, gave evidence.

Q1 Chair: Gentlemen, thank you for coming in this morning. It would be helpful for the record if you would be kind enough to introduce yourselves.

Dr Robertson: I am Douglas Robertson, Chair of PraxisUnico, and Director of Research and Enterprise Services, Newcastle University.

Dr Nightingale: I am Paul Nightingale, Deputy Director of the Science and Technology Policy Research Unit, University of Sussex.

David Connell: I am David Connell. I am a Senior Research Fellow at the UK Innovation Research Centre at Cambridge, but my background is in the technology community, including as co-founder and chief executive for many years of an early-stage venture fund in Cambridge.

Professor Georghiou: I am Luke Georghiou, Vice-President for Research and Innovation at the University of Manchester, and also a professor in innovation studies.

Q2 Chair: We have a lot of ground to cover this morning. If one of you is asked a question and others want to supplement it, please feel free, but if there is a repeat answer just say so, if you are agreeing with each other. First of all, can I start off with some definitional issues? Does innovation begin with the intellectual property or the entrepreneur? What is the beginning of the process?

Dr Nightingale: Most innovation takes place in firms rather than with individuals. Most innovation takes place in large firms rather than in small firms, and most innovation does not involve intellectual property. There are other ways in which you can protect innovation: secrecy, complexity, degrees of scale and being first to market. When we are talking about innovation and IP we are talking about a subset of innovation, but it is particularly important in high-tech areas where lots of economic growth is driven from. In terms of entrepreneurship, the areas of innovation where entrepreneurship in small firms is important are biomedical, innovation, software and so on, but in general the focus for innovation policy should be on firms-and large firms-rather than start-ups.

Dr Robertson: When you look at the IP landscape, it is important to recognise that tacit knowledge is incredibly important, not just formal intellectual property; it is ideas that matter. Very often when a piece of technology is patented and starts to be worked up commercially, it is not that protected technology that gets to market. It is a second or third-generation technology that gets to market, alongside the tacit knowledge that comes through people.

David Connell: The answer is that it can be both, together or separately. There are important differences that have led to some confusion in innovation policy. If you look at Cambridge, for example, and you look at the most successful science and technology companies, there is a general assumption among many people and policy makers that the innovation in those companies is based on university IP. The reality is that the overwhelming majority of the most successful, in terms of job generation and sustained profitability, are based on solving customer problems in a business environment.

The second part of the answer is that policy is often influenced by looking at the experience of some very high-profile companies-for example, Facebook and Google-where it is the entrepreneurial drive that is the key rather than the university IP. Therefore, the time to market can be much quicker and the risk is much lower. I take it that the focus of this Committee is on genuine IP deep-research-based innovation.

Q3 Chair: I want to turn, specifically, to universities. In terms of universities hanging on to IP, is there a rule of thumb about how long that should be or is it on a case-by-case basis?

Professor Georghiou: There is no rule of thumb. We do not find IP ready in our labs. What we find are researchers with good ideas. It often takes assistance and some work on proof of concept, both technologically and with commercial advice, to generate IP. We see our job as holding on to it long enough so that it is stable in a way that we can successfully hand it on, either in a licensing or spin-off mode. So we are custodians of it. It is not our intention to keep it for ever.

Dr Robertson: It is important to recognise that one of the challenges with intellectual property protection is that it is a right to stop people doing things. Therefore, if it leaves the university and goes into the hands of somebody who does not wish to use it, it becomes a mechanism for stopping innovation rather than advancing it. The answer, as Luke indicates, is holding on to the intellectual property for sufficient time that it can then move on to someone who will make good use of it. The rule of thumb is don’t hold on to it if someone else can make good use of it and start paying the fairly heavy protection costs that are involved, but don’t let go of it until you know that you have a reliable partner.

Dr Nightingale: I would agree with this point. There are two issues. There is how long universities should hold on to it for the good of universities and how long universities should hold on to it for the good of UK plc. These two issues can be in conflict. For the good of universities, they will want to hold on to it for, perhaps, longer than they should and try to commercialise it, but it may be better for UK plc to distribute it much more freely. The most successful model of this would be the University of California. Their IP model is to disperse discoveries and IP as broadly as possible for the benefit for the State of California, because it is publicly funded, not for the benefit of the University of California, and that seems to be a very successful model.

Dr Robertson: I have one further thing to add. The Universities of Glasgow and Bristol and King’s College are running a pilot scheme on something called "Easy Access IP", where, basically, they look at their intellectual property portfolio and divide it into two components-one that they feel they can do something with and one that they feel they cannot do anything further with and it is better to be in the hands of others. They make that available on non-exclusive licence terms without necessarily the requirement for payment. That scheme is starting to generate some interesting results. It has only been running for just over 12 months.

Q4 Chair: Stemming from that, should universities extend their traditional role of teaching and research to encompass commercial activities?

Professor Georghiou: I think we should. We should not let it dominate our activities. Clearly, research and teaching are at the core of what we do. We also have a third mission-a mission of social and economic responsibility. It also provides a focus for teaching our students entrepreneurship. If we are not doing it ourselves and we do not have the mechanisms, it is difficult to engage them. A very important area highlighted in the Wilson inquiry now is the idea that you start engaging students at the earliest possible stage in their careers with entrepreneurship.

Dr Robertson: One of the challenges for the UK is this tension between the university direction of travel and the benefits for UK plc. One of the real challenges universities face is the absorptive capacity of UK industry. We only have two of the top 50 companies in the world in terms of investment in R & D as a percentage of a country’s GDP. They are AstraZeneca and GSK. Therefore, it is finding a UK partner that the university can work with in order to trap the benefits for UK plc. To some extent that is why some universities pursue the venturing route because that attempts to trap the value in the UK as the company is formed in the UK, and, hopefully, the investment and employment flow into the UK.

David Connell: Clearly, universities are already embracing that objective significantly. My colleague made a very important point-if we want to create jobs in the UK we have to look to spin-outs and exploitation by medium-sized companies of university IP as being the key mechanism, not necessarily partnering with big companies, which will almost certainly be overseas.

The problem that we have faced is that some policy makers have tended to assume that universities can take the development and exploitation of some research further along the process than is actually possible within a university environment. Universities are about teaching and publishing papers. Academics do not work full time on development. Development staff are predominantly PhDs and postdocs, who move on quickly. You cannot manage the IP product during the course of a project. You do not have the technical means to produce demonstrators, which is what you need to engage with the commercial community. That means that there is an intermediate stage, which I call the exploratory development phase, which has to be done in a more or less commercial environment before you engage with, let us say, a venture-backed company.

There are two solutions for that, in my view. One is creating new and specialised institutions, such as the Fraunhofer Institutes in Germany, to undertake that role. The other solution is to put substantial Government money into the very early stage companies, at the point before they are right for venture capital investment, which is, essentially, the US approach through procurement-based policies, such as SBIR. We have, collectively, assumed that universities can go too far in this direction of commercialisation and we need to recognise that there is an intermediate stage that needs to be filled.

Dr Nightingale: If the taxpayer is going to pay money to universities, then universities have an obligation to contribute towards economic development activities, and that is widely accepted. The key issue would be the diversity of the university system. The UK has universities like UCL, Imperial, Cambridge and Oxford, which are world class at moving technology into the economy, and it has other institutions that do not have that capability. Overall, that capability is, probably, pretty low. If you asked the venture capital community what they thought of technology transfer offices, you would get a fairly negative response. One comment that I heard was that there are three things wrong with universities: they are ignorant, greedy and risk averse. Not all universities are like the University of California, and we have to accept that diversity, but there is nothing wrong with universities not being world-class technology transfer institutions. It is perfectly fine for them to be teaching institutions.

Professor Georghiou: Can I disagree with my two colleagues? Our leading universities I would hope are within that group, but also Imperial College, Cambridge, Oxford and Newcastle are, in my view, as good as US universities in fostering technology. We normally work through subsidiary companies in partnership with venture capitalists, who exercise a commercial discipline on every decision that is taken. We have a number of companies that have been capitalised in the hundreds of millions, exporting the highest of technology around the world. The challenge is more to spread that expertise rather than to try and replace it with what sound to me like bureaucratic structures-not commercial ones. We always have a challenge in situating a different kind of activity in the university model. The way to do it is to put it at arm’s length and make sure that commercial people are driving it.

Q5 Chair: Would you like the last word before we move on?

Dr Robertson: I have to react to the comment that Paul made with regard to the venture capitalists’ view of universities and technology transfer offices. The amount of true venture capital funding under management by BVCA members is 4% of the BVCA funds under management. It comes to £313 million a year from the early stage, through seed to the next round of funding. That is a very small amount of money to invest to try and support venturing out of a science base that is the second best and, in some cases, the best in the world.

Q6 Stephen Mosley: We have heard evidence that the traditional "linear" model of innovation-basically, in which a university generates research that moves forward, is then transferred and commercialised-has been discredited, to quote. Would you agree with that analysis?

Dr Nightingale: Yes. The point made by David that the majority of innovations and high-growth firms in the Cambridge area are spinning out of firms, not universities, is supported by a large amount of research. High-tech innovation is only 3% of the economy. Universities do play a role, but their main role is generating well-trained people.

Professor Georghiou: I agree with that. I don’t think it is discredited; rather, it is a special case that happens only in a limited amount of circumstances. The worry is that it often is given more weight in policy making than it should be, and we lack the kind of things that David Connell was talking about-the importance of interacting with users, with the demand side, and therefore using instruments like public procurement.

Q7 Stephen Mosley: You have come on to my next question, which is, do you think that Government and organisations like the TSB put too much emphasis on the linear progression, and are those organisations flexible enough to cope with how it really works?

Dr Robertson: The challenge is that, if you try to institutionalise something, the linear model suits a process that is easy to manage and to challenge. The challenge for technology development is that it is full of failure. You don’t just succeed. If you fail, you then figure out why you failed and you go back into an iterative process, sometimes having to go back quite a long way to go through the next stage in development. That is a very difficult model for public sector investment because it is about investing enough to succeed but being aware that you will invest and fail. That is a tough job for people like the TSB, who are looked at as the major innovation agency in the UK. It is a real challenge for them, but that is why the venturing model is one that I, personally, favour, because venturing is about investment and not grant funding. It takes you into a quasi-commercial environment in order to pursue a technology that you have to have enough money to fail once or twice. You have some other people giving evidence later this morning who will give you ample evidence on the demise of the linear model.

David Connell: Can I comment on your question also and earlier remark about venture capital? An interesting question is, if it is not the linear model, what is it? Clearly, there are a whole variety of different ways through which technology is turned into commercial products. It can take a lot of time over many different actors and organisations all over the world sometimes. Again, you get a lot of lessons from looking at Cambridge, which is probably our best example of a science and technology cluster. There is a particular model that is really prevalent there, and that is what I call the soft start-up model, whereby companies quite often start not by developing standard products for a wide market, probably with venture capital as backing, but by undertaking development contracts for individual customers, perhaps based around a piece of IP or based around their skills. Over time they might build a contract business-that is a service business-or they might move out of that model into developing a product business on the back of that as a result of stumbling across an opportunity or building a piece of IP.

The soft start-up model is the dominant model in Cambridge for the most successful companies. In fact, the key source of jobs in product companies in Cambridge is four technology consultancies-really contract R & D houses-which have their origins 50 years ago in some guys who left the University of Cambridge but have made a living and grown over the last 50 years by developing products and technology for individual customers. They, together, over the last 30 years, have created more jobs in sponsored spin-out companies than the entire university.

You can see that model replicated in other areas. For example, there is a very successful CAD software company called Aviva-a product company, employing 500 people, whose origins were in a predecessor of a catalyst institute, actually set up by a Labour Government in the ’70s, called the CAD Centre. The point I want to make is that it is really helpful to look at this process as being a two-stage process. The first stage is to create expertise-based organisations that do R & D for money, for commercial contracts for companies. The second stage is then to move into products, which is when you begin to get the more substantial employment gain. In different nuances, you can see that model being applied across a whole variety of different sectors. This is not just in Cambridge, by the way, but also elsewhere. Microsoft is a soft start-up. Vodafone is a spin-out from a soft start-up, as is Racal. Wilson Microelectronics in Edinburgh, which is probably Scotland’s most successful new technology business, is a soft start-up. It moved into products as a second stage.

Dr Robertson: The important aspect of innovation and developing research is to think of it as at least two different categories. There is revolutionary change and there is evolutionary change. For the most part, existing companies are very good at evolutionary change. That is about the next increment on their product range. It is in a comfort zone in a market that they are fully aware of. The challenge for modern economies is how you tackle revolutionary change. You would not manage to sell a new model of light bulb taken by a candle manufacturer because it would undermine their entire market. Therefore, it is how you tackle revolutionary ideas. The stuff that comes out of universities, out of basic science and basic engineering, and the stuff that we want to trap in the UK, are the revolutionary ideas-the ones that will create completely new industries as well as assisting the continuous process of evolutionary development through existing businesses.

Professor Georghiou: If I could just come back on the soft start-up, hearing about Vodafone, I spent most of the 1980s evaluating the country’s probably last very large public technology programme-the Alvey Programme for Advanced Information Technology. That company had its origin in this public technology programme, and many others do as well. We do not have the same level of input going in now, although the TSB is the natural successor, but we should not neglect the fact that private success is often founded in a public activity.

Q8 Stephen Mosley: Finally, what role, with the model you have just outlined, have the Government and organisations like the TSB got to play in that?

David Connell: The key to making this model work, and it is something that venture capitalists look for as well in the companies that they back, is lead customers. What does a lead customer do? What a lead customer does is, essentially, to react to the technology and opportunities being presented by a technology company and commit to paying for feasibility studies and demonstrator developments, maybe buying a very early prototype for that technology to be applied to the customer’s particular needs, perhaps with a view, if it is successful, for that product to be sold on to competitors.

Again, in Cambridge and elsewhere-all over the world, actually-you see the private sector playing this role. Drug discovery companies like GSK have played a terrific role in funding the development of research tools, for example. You do not see it applied in all sectors. The issue is, what can Government do? Government, as a very substantial part of the purchasing economy through procurement, can play a similar role by specifying problems that they need to be solved, technologies they believe they need developed either as the user or a specifier, or for policy reasons, and then funding, as a customer, the development of those technologies within small companies.

In the US there is a very effective programme called the Small Business Innovation Research Program, which is worth about $2.5 billion a year. There is about as much again, or more, coming through other programmes, which fund this kind of development on a competitive basis in companies. It is about as unbureaucratic as you can get in a public sector programme, because it is competitive; it tries to link customer needs and use those to steer company developments. I would argue that what the UK should do, and also the EU, is to switch a substantial part of its innovation budgets-I am talking about TSB money and also R & D tax credits-into programmes of this kind.

Dr Robertson: What Government can do, and it is a tough call in a recession, is to invest. There is hardly a country in the developing world that is not investing substantially. The US, which is lauded as a private sector-led economy, invests far more in co-investment with business through the SBIR scheme than any other country in the world. The public sector intervention is a real challenge in the early stages of technology development, but for the UK I do not think there is much alternative. In a scheme that was run a few years ago, which was called "University Challenge", the Government put £65 million in two rounds into a consortia of universities to establish their own venture funding. Some of those funds are now evergreen, like the Lachesis Fund in the Midlands. That fund had £65 million of public sector investment and generated £430 million of private sector investment. That 1:7 leverage is exactly the kind of initiative we now need alongside our procurement strategy, which, as has just been indicated, is innovation oriented, and alongside an SBIR scheme that creates an environment where winners can emerge, rather than endeavouring to pick winners.

Q9 Hywel Williams: Taking on the point that Dr Robertson was making about failure leading to success, the phrase "picking winners" is used quite a lot. Do the Government strike the right balance as between being too selective or not selective enough? How do you avoid wasting money on prolonging the lifetime of weak ventures of weak companies?

Dr Nightingale: How do you stop prolonging the support for weak firms? Don’t support weak firms. There is very little evidence that supporting weak firms has any economic benefit. There is a debate going on in economics that it might be harmful for the economy to have too much rubbish messing things up. That was rather brutally put.

The key issue from economics literature on this point is that it is not the case that there are good firms that continue to grow over time. Even firms that have grown very well for 10 years may have a bad period. The growth of firms is very close to a random walk. It is very close to tossing a coin. The ability of anyone to pick winners is almost non-existent. I have a large research team and fantastic data; I can explain about 2% of the variants. This is the reason why it is very difficult to make money from technology investing. I would not advise the Government to try and pick winners. I would advise Government policy makers, if someone says that they can pick winners, to accept that they can’t and that they should put their own money in before the taxpayer puts money in. The issue, as has been mentioned before, is to create an environment where you can have growth, job creation and innovation. It is not necessarily by picking firms, but by creating that environment where some firms may grow one year and a whole group of different firms may grow the next year, and it does not matter to the economy that they are different.

Dr Robertson: The challenge for the TSB is fairly large, but there is a danger of coming up with too many schemes targeting too little money in too-narrow areas. I understand the rationale that says, "We need some activity in this area," so it then leads to a move. It is a real challenge for them to get the balance right, but they need to have a sufficient portion of their funds that are responding to bright people with bright ideas that nobody has thought of apart from those bright people, and focus not on that project and evaluating that project, but on evaluating the team, the partnership and the people. That is the way universities work fairly effectively with businesses. When it works, it works swimmingly well. Actually, it is a real challenge for a university that finds a company it wishes to work with to then find a scheme that will bring in public sector intervention to support that partnership if it does not fit something that somebody else has already thought of. I would see a more responsive portion of the TSB funding being in SBIR and being in collaborative grants for research and development without pre-determining the area of activity.

Professor Georghiou: We should not confuse picking winners in companies-I fully agree with everything that has been said-with picking markets or, in some cases, technologies. We have to have some benefits of concentration and focus. A country this size simply cannot afford to cover everything. If we spread out the money evenly, we would be behind everybody.

David Connell: I agree with that. Who, 20 or 30 years ago, would have picked vacuum cleaners as an area in which the UK would have built one of its most successful companies? One of the ways that we can do this is through the SBIR programme. We have had an SBIR programme in the UK, as you will probably be aware, for the past two years. It is quite small, about £20 million. It should have been about £250 million if it was going to be equivalent to the US programme, bearing in mind the size of the economies. The way that works is by using potential customers and users to define the problems that need to be solved and then running the programme competitively at different stages. So companies, initially, if they were successful, would win a £100,000 contract to do a feasibility study, and then roughly half of those would go on to win a phase 2 based on how well they did. There is a natural process of focusing on the best projects, unlike the kind of grant programmes that we have tended to operate in the past, frankly.

Q10 Gareth Johnson: You highlighted the problem of picking out winners and trying to identify those companies that are likely to be successful. Would you say that that applies to situations where we have previously had match funding and, therefore, also had problems in doing that? Mention was made about vacuum cleaners. Dyson is probably the best example of disruptive technology. It is pushing out an existing technology. If we went down the route of having more match funding, do you think it would have a disruptive effect on those companies that are trying to muscle in on technology that already exists?

Dr Nightingale: We have done an evaluation of the match funding scheme run by BIS. Our conclusion is that they are effective, cheap and generate jobs. The problem of being able to go better than 2% in predicting growth is so difficult that you need to have professional investors, but professional investors-because it is difficult to make money out of innovation-find it difficult to raise money in the markets. Match funding is an effective piece of Government policy. The UK has been running high-risk schemes for a long period of time. BIS have learned well and they have schemes that work. This is a piece of public policy that I would support. There seems to be a lot of support among my colleagues here for the SBIR initiative in the United States.

I did some work for your colleagues on the House of Lords Select Committee, and I reviewed the literature on this. Two types of evaluations are done. One is evaluations where you ask people whether they think it is a good idea that they got money for free, and they generally come out with the answer, "Yes." There are other evaluations where they look at controls and do proper econometric analysis. As far as I am aware, there have only been two proper evaluations of that scheme, and both of them found that it did not produce major improvements in job creation. One of them found that it produced no improvements in job creation. However, it does play a very important role in providing accreditation for the value of technology, so it provides due diligence for free. It plays an important role that way, but it is not going to solve the Government’s problems.

Dr Robertson: I certainly favour match funding schemes. I don’t favour the Government pre-determining the areas in which that match funding should take place. Government officials should be judging proposals that are put forward by partnerships between universities and companies and companies with other companies, rather than trying to pre-determine the outcome and deciding if that is a good investment of public money, because that decision has to be made. Too often it takes too long for a company to come through some of these systems and they just don’t think that it is worth the effort. What that means is that they do not work with that university to take on that high-risk idea. They will stick to the knitting, and they will do what they do very well, but without taking their company, maybe, into a new technology sector or a new challenging field.

The KTP scheme, in terms of evolutionary technology developments, is a very good co-funding scheme. It has been running for over 30 years. One of the reasons why it works is because it has advisers who work with the company to help them figure out how to get through the process. It means it is more costly because you have to provide advisers, but, when you have the investment in business R & D that we have in the UK, we have to create more businesses investing in R & D. I see co-funding and not tax credits as the way to get people to do something that they had not previously thought of doing as their company tries to come out of recession. That, to some extent, forces companies to think of new developments, so it is a good time to further develop co-funding schemes.

Q11 Graham Stringer: This is fascinating. To take a real recent example, £30 million to £40 million is the next stage of development of graphene at the University of Manchester. I would be interested in Professor Georghiou’s view about whether that is a good decision in the light of what you have just said.

David Connell: I will go first while you are thinking. It is very hard to say whether or not this is a knee-jerk reaction.

Q12 Graham Stringer: You take my point. What you are saying indicates that it is a bad decision.

David Connell: No, I am not indicating that it is a bad decision. What is really important is that we have research excellence in the UK. Really high-quality research universities are critical to any economic activity and to any cluster, as much as anything because of the people that they train and so on. I do not know enough about how that particular research centre is being structured, but the question is-if it is, essentially, for the time being, a university-style managed research environment-whether that will enable the technology to be taken far enough to be turned into products. I suspect it is a 15 or 20-year journey, in which case it is probably the right decision. But we will probably need some further decisions to ensure that we get to the end point that we need.

Professor Georghiou: Graphene is the kind of opportunity that, probably, only comes along once every 20 years. It is different and it has to be treated differently. We have a strong world scientific lead. We absolutely dominate the science in this field, although almost every other major country is investing far more than we are. Our £50 million does not look large on the international scale at all.

The National Graphene Institute is partly there to secure the leading science, but it was formed also to support commercialisation in two ways. It has a built-in incubator for start-up companies, which we already have, and it is also there to attract business into and from the UK to work with a number of companies in developing the technology. Some aspects of it, as David said, will take 20 years to realise. Others, already with people like Samsung, will be appearing in next year’s or the year after’s products. It is a little bit different from lasers, let’s say, where there was a very long time to market. We are doing everything we can to support that economic benefit being realised.

I talked earlier about student entrepreneurship. We have 50 PhDs in the graphene area, all of whom are having entrepreneurship training, not just from academics but with leading venture capitalists and others coming in. They have been hugely enthused by this. Several of them are already thinking about forming their own companies or going to work in an entrepreneurial environment using their own science. So we have a huge opportunity here.

Dr Robertson: Graphene is an interesting example. It is certainly an exciting technology. Anything less than £50 million probably would not have scratched the surface. One of the challenges sometimes is not the amount of money, but the flexibility that comes with that money and whether it can be used for capital or capital and recurrent. We are quite often good at the starting investment in those areas, and quite often it is highly capitally focused. The question then is that you have to create an environment that would allow graphene to be truly captured in the UK, which will take recurrent funding on a regular basis with a rounded approach, as Luke indicates, looking at enterprise, developing the staff and the students in the graphene area to be truly hybrids between science and enabling commercialisation on the back of that science.

Q13 Stephen Metcalfe: I would like to pick up on some of the issues around funding and particularly the way it is allocated. We have a number of submissions about how the Government allocate funding across the entire science and technology spectrum. Bearing in mind that the Government have a limited amount of resources at the moment-it is a tough economic climate-have they got the balance right between basic research, the Higher Education Innovation Fund and the TSB? Is where they are putting the money correct and are they supporting commercialising innovation?

Dr Robertson: That is a good question.

David Connell: I will attempt to answer the question. I will also comment on an earlier question that is related to this matter, which is about match funding. Let me pick up match funding first. Match funding can take place in two ways: first, by the Government giving the company a grant and seeking the company to put money alongside that. That is fine for large companies. For small companies that is really difficult. Most small companies do not have venture capital. Only a tiny majority have venture capital, cash assets or the profitability to sustain those investments. The way small companies succeed, in the main, is through fully paid contracts from customers. The Government would do well to emulate that.

The other kind of match funding is through the way in which Government have sought to match funds-investments in venture capital funds-through fund vehicles. The problem with that is that the average return on venture capital, especially at the early stage, in the UK is round about zero. It is true across Europe. This is a long-term issue. This is not temporary. For a long, long period you would not have wanted any portion of your personal pension funds invested in a basket of early-stage UK funds. This is not market failure. This is rational behaviour by our pension funds. If we want a viable venture capital industry, essentially we have to have some kind of two-tier structure in which Government do not match fund-it is not something where they say, "We’ll lose £50," if you will-but by which it makes it easier for the private sector to play that role.

Coming back to your broader question about funding-put aside the funding that goes into universities for the time being-if you look at the funding that goes into companies, there are, broadly, three or four elements to that. There is the TSB collaborative R & D programme, of which, I guess, probably about £150 million, maybe, goes into companies. Historically, the majority of that has gone into big companies, although the situation is changing a bit now. There are some small schemes that probably bring in a bit more. Then you have R & D tax credits that cost the Government a billion pounds a year, three quarters of that going into large companies.

If you just look at that portfolio, the companies that benefit most are large businesses. Large businesses have very strong lobbies, as of course does the university system. The part of the economy that does not have a strong lobby is the small business, particularly the small technology business. Basically, they are too busy to lobby, frankly. That is where money needs to be shifted. It needs to be shifted, first of all, more towards small businesses, and, secondly, it needs to be focused on the higher risk investments in R & D that those companies undertake.

Important beneficiaries of the R & D tax credit scheme are the banks, for example. According to the last R & D scoreboard, HSBC and RBS came above British Aerospace and Rolls-Royce in terms of expenditure on R & D, despite the fact that five years previously they had not admitted to spending more than a million pounds each. This is according to the DTI’s R & D scoreboard. Who knows what the background to that is? What it suggests to me is that the R & D tax credit programme has grown to the extent where it is supporting a lot of routine R & D, which, basically, companies ought to be able to support themselves. We should be trying to find a way of focusing that substantial part of the spend on the higher risk, longer- term, more difficult area of R & D, which is where companies really need help.

Dr Nightingale: There are really two issues. In terms of research, the big issue for the UK, compared with the United States, is that we spend about half as much as a percentage of GDP on research as they do. That has a big impact on our economy and a big impact on high-level skills. The big issue in terms of research is that we are an also ran. We are not playing in the premier league of international investment in university research.

When it comes to commercialisation, the issue is not so much how much money do you put in, because such a small number of innovations actually generate high returns-it is very skewed-but it is whether or not you are putting money into programmes and institutions that will generate that innovation. We have put a large amount of money into the Regional Venture Capital Funds, and that was, effectively, a waste of time. However, in the United States they have a VC scheme where they make very small investments in a tiny number of companies. VC in the US invests in about 600 to 800 early-stage companies a year. For an economy the size of the US, they have generated over a third of their stock market capitalisation. So it is a tiny proportion of firms that make all the difference, and you need professional investors to do that. People like me who work in universities are unable to make those decisions. Match funding to build up a professional investor system is very important, but it is not so much the amount of money; it is whether it is going to the right institutions that counts.

Q14 Chair: Can I just hold fire at the moment, both colleagues and witnesses? I am conscious of the fact that one of our next witnesses is on a very difficult time schedule. Can we speed up the responses? If there are additional pieces of information, I would be grateful if the witnesses would formally write to us.

Dr Robertson: We are heading in the right direction. If we wish to retain the quality of British science, it will be difficult if we move funding away from the basic science budget and stay in that position given the comments that have already been made. I would make a plea from my sector’s perspective. The University Challenge Seed Fund Scheme was a very powerful scheme generating partnerships with venture capital and, potentially, now partnerships with corporate venture capital, which is becoming incredibly important. It is part of the "valley of death". If we want to capitalise on our higher education base, we need to make those kind of investment decisions alongside the things that Paul has just mentioned.

Q15 Stephen Metcalfe: Very briefly, because I am conscious of what the Chairman has just said, does the TSB have enough money allocated to it to make a difference to UK plc?

Dr Nightingale: I return to my earlier point. It is not the amount of money, but whether it is going in the right place.

Professor Georghiou: First of all, it should not be a trade-off with RCUK and HEIF because those are both underfunded as well. We should think of the overall investment in the growth of the economy. Bearing that in mind, it is probably still sub-critical in the amount of money it has by international standards. If we look at successful public technology investors, like Germany or Finland, they, relatively, have considerably more.

Q16 Stephen Metcalfe: You are not suggesting moving money from the research budget.

Professor Georghiou: No; absolutely not.

Dr Nightingale: Certainly not.

David Connell: My view is that substantially more funding is needed of the kind that the TSB deploys. I would like to see more of it deployed through spending Departments as customers-not from the research budget, but from maximising the innovation budget for business.

As our time is coming to an end, can I make an invitation? I would like to invite the Committee members to come to Cambridge-we have a compact cluster of companies-and visit some of the businesses of different shapes and sizes that illustrate some of the points that we have all been talking about. Perhaps you could come up for half a day or a day. I would be delighted to help you with that.

Chair: I will take you up on that, thank you.

Q17 Pamela Nash: I will put all my questions into one, considering we are very short on time. In your opinion, compared with our main competitor countries, what are the barriers in the UK to the commercialisation of science? I would, in particular, like to know what your opinion is, David, of the Government’s recent policies in trying to bridge those barriers, and particularly will the new Catapults help to bridge the gap at the moment between universities and companies? Also, is the Technology Strategy Board taking the right approach at the moment?

David Connell: Catapults is part of the right solution. We do need those kinds of organisation. We are virtually the only advanced country that is not investing significantly in that kind of organisation. There is still a question mark over whether those are being designed in the way that many of us would like to see. Seeing them spread over different geographical organisations is not the right solution, in my view. They need to be focused, well funded and managed in a very commercial way. A lot of what both this Government and the previous Government have been doing has been moving very much in the right direction. The same is true of the EU, by the way. The new EU Horizon 2020 proposals include very significant changes in terms of supporting small technology businesses, but there is still more to be done. The devil is in the detail, very often, in getting the policies right.

Q18 Pamela Nash: Who do you think the Government should be speaking to in that case, in order to improve the Catapults?

David Connell: That is very easy. The best role model for the Catapult centres, actually, is the four Cambridge so-called technology consultancies. Catapult centres are, basically, broadly based on the Fraunhofer Institutes in Germany, which employ 16,000 people in 60 different units. They are about partial Government funding of commercial-type R & D organisations, which will then spin off companies and exploit technology commercially. The best people at doing that are the Cambridge consultancies, but they do it without Government support. The Government would do well to draw on the expertise of those consultancies.

Dr Robertson: As to major barriers, one is the early-stage venture environment. It is a real challenge in the UK. The second major barrier is the absorptive capacity of UK industry, primarily because business investment in R & D is among the lowest in the OECD countries. That is why schemes like co-investment and co-funding have to be used to catalyse the business community in terms of who we need to be speaking to. We need to be getting more of our bright technology entrepreneurs, chief execs and chairs into the room, rather than relying on people who are working with large companies that do not have a significant UK footprint. It is a real challenge for the UK, but we have some very bright technology entrepreneurs and those are the people who should be being consulted and talked to.

Dr Nightingale: In terms of commercialisation, the UK is very good compared with the rest of Europe, with the possible exception of Scandinavia. There is an issue about relative amounts of GDP that we spend on university research. One of the problems we face is unrealistic expectations about things like spin-outs, SMEs and whether or not they are going to produce that much, because there is not much evidence that they do. The key issue is that we need proper evaluation of these schemes. We really don’t know what works. It is very complicated right now and this has been a problem. I would make the suggestion that, if we wanted to reallocate some money, we shut down the Patent Box scheme. Take that billion and put it into whatever schemes that you suggest. That is probably one of the worst pieces of public policy that I have ever seen in my career.

Q19 Caroline Dinenage: I am going to take a leaf out of Pamela’s book and formulate my questions into one big one. The Wilson review highlighted the lack of data on the innovation ecosystem. In your view, is there a sufficient evidence base to inform the Government’s decisions in this area? It also said that there was no single overriding voice across the whole innovation landscape. I would like to hear your thoughts on that. Finally, was the University of Oxford right to say that the innovation ecosystem suffers from initiative-itis?

Professor Georghiou: First of all, on initiative-itis, it is a problem that has been with us for, probably, 15 years. It is not something new. We tend to have a lot of clever schemes that are too small, are recycled, re-announced and, therefore, confuse the client communities-particularly the small business client communities. So larger, more flexible and more long-running schemes would certainly be better. On evidence, yes, we need better evaluation. We have probably gone a little backwards on that, having been, maybe, the leading country in the area a few years ago.

I should call attention to the fact that my colleagues in Manchester are working with Nesta to provide a compendium of evidence on innovation policy initiatives, trying to pull together what has been learned about these around the world. This will be a useful resource that is coming through now.

If I could, very briefly, wind back to the previous question that relates to main barriers, one more thing should come into the evidence, which is that we keep looking inside the research and innovation system, but our biggest barrier is probably an insufficient entrepreneurial culture outside it, whereby we can get our bright students wanting to work in small and high-technology companies.

David Connell: I have a very brief comment. It is not so much on evaluation but on reporting the basics. If we look across Government organisations involved in technology, rather than providing annual reports in the format that you would see from a public company, they tend to produce brochures with examples of what they are doing at the time. It would be really good to know where the money went, actually, and to see some proper reporting to the kind of standards that we should demand.

Dr Robertson: I would echo that. Case studies and lessons learned are very valuable ways to evaluate these schemes. You have to be careful. Many people around the world have been studying innovation, and if everybody cracked it we would not be where we are. There is plenty of evidence. It is the boldness of decision making that is the next key step.

Dr Nightingale: On initiative-itis, they should be flexible and larger. They should be integrated. On evaluation, there are far too many poor-quality evaluation reports where they ask people whether it is a good idea that they receive free money. They are a waste of time. If you look at a country like Finland, they build proper evaluation into every single public policy scheme. We should be doing that, but we do not.

Q20 Sarah Newton: Thinking about some of the new technologies that the Government have prioritised, such as offshore renewables, to what extent do you think we should be looking at the geographical locations of research institutes to support these new emerging industries and technologies?

Professor Georghiou: Geography is really important. David was talking about the Cambridge cluster. We have a number of other clusters. We also have a huge potential in our cities. Cities are probably the most important regional unit that we have. The kind of interactions that take place there bring technology into contact with the cultural sector, with investors and others. There are huge opportunities where we can use the LEPs to capitalise on. We also have a problem in this country that the vast bulk of public technology investment is concentrated in the south-east. We have enormous potential in other parts of the country. In the north of England where I come from, the N8 Group of research-intensive universities has been working together successfully to engage with large companies collectively. We have had some very good results.

Chair: You know how to please the Chairman, don’t you?

Sarah Newton: Certainly the Combined Universities in Cornwall, I would say, are working very well.

Gareth Johnson: Live in the south-east!

Dr Nightingale: I would agree with that point. There is too much concentration in the south-east. There is some fantastic research going on in universities outside the south-east. Should geography matter? Geography should not matter. We should be relying purely on quality. That will have an effect in that people who are innovative, highly educated and entrepreneurial want to live in certain places and not in others, and they will move to those places. They may move to the south-east. There is a public policy issue as to what we should do about that, but in terms of innovation we should rely entirely on quality.

Dr Robertson: Geography does matter. You have to invest in excellence but money talks. If you invest money, then excellence will quite often aggregate around the resource, so I am sure there will be more people in graphene heading to Manchester and co-locating and working with Manchester as a consequence of that investment than would have been the case in the absence of the cash. We do have a relatively small country, but we seem to be able to create it as if it is the size of the United States of America. We are incredibly privileged. You can get from Newcastle to London in two and a half hours by train. It is not the end of the world. It is a really good place for people to invest, and I would commend it to any organisation.

Q21 Sarah Newton: We have had a very good advertisement for universities around the country. Finally, do you think there is going to be any impact at all on the commercialisation of research as a result of the loss of the Regional Development Agencies?

Dr Nightingale: No.

Q22 Chair: Are there other views on that?

Professor Georghiou: The one in our region was doing a number of good things. It was well engaged with the science and innovation community, so it is more a matter of preserving those functions than the particular channel by which those are delivered.

Dr Robertson: I would agree with that again. In the north-east we had a good Regional Development Agency. It did some very good work. The best thing it did was that it talked to people about what it was doing and engaged them in the process.

Chair: Gentlemen, thank you very much indeed. I am sorry that we had to push you a little because of time. There may be some further thoughts when you have read the transcript. I would be grateful if you provided any additional comments. Thank you very much for what was an extremely informative session.

Examination of Witnesses

Witnesses: Dr Ted Bianco, Director of Technology Transfer, Wellcome Trust, Dr Ian Tomlinson, Senior Vice-President, Head of Worldwide Business Development and Biopharmaceuticals R&D, GlaxoSmithKline, Dr David Tapolczay, Chief Executive Officer, Medical Research Council Technology, Dr Gareth Goodier, Chair, Shelford Group, and Chief Executive, Cambridge University Hospitals NHS Foundation Trust, and Dr Andy Richards, serial biotechnology entrepreneur and business angel, gave evidence.

Q23 Chair: I am conscious that this is going to be harder than it was with the previous panel as we have an extra person. I would be grateful if the five of you introduced yourselves for the record.

Dr Tomlinson: I am Ian Tomlinson. I am Head of Worldwide Business Development for GlaxoSmithKline. In a previous existence I founded a biotech company called Domantis that GSK bought. For 11 years before that I was an academic at the MRC.

Dr Tapolczay: My name is David Tapolczay. I am the Chief Executive of Medical Research Council Technology, which is, in essence, a tech transfer office managing the intellectual property of the Medical Research Council in the UK. I have worked for Glaxo, GlaxoWellcome, GlaxoSmithKline, Zeneca and ICI Pharma, and also I started up seven biotech companies.

Dr Goodier: I am Gareth Goodier. I am Chief Executive of Cambridge University Hospitals and the Chair of the Shelford Group, which represents the 10 academic medical centres in this country. As a CO, I have been responsible for four academic centres myself in north-west London, which at the time had 23% of the health R & D budget.

Dr Richards: My name is Andy Richards. I am an entrepreneur and business angel investor, specialising in the life sciences area. While I am a director of nine companies and chairman of four, and involved with important organisations like BBSRC, Babraham Bioscience Technology and Cancer Research Technology, I am here very much in my own personal capacity as an entrepreneur, founder and investor in more than 20 companies over the last 20 years.

Dr Bianco: I am Ted Bianco. I am the Director of Technology Transfer at the Wellcome Trust and a member of the Executive Board. We initiated a new funding division in 2003 called Technology Transfer that does translational funding to bridge the gap. This has now spent in the order of £350 million, having ramped this figure up from £8 million in the first year of operation. We have seen a leverage of something like £685 million of third-party funding on the back of these projects. This is my day job.

Q24 Chair: Thank you very much. First of all, bioscience is often quoted in the press as an area where Britain has got it right and the Government life sciences strategy has been praised. What has made biosciences so much more successful than some other sectors? Is it the right skill base, the right companies or being more in tune with the Government’s financial support? What are the key things?

Dr Tapolczay: From my observations, if you look at the most successful bioscience clusters around the world, they share a certain commonality in their heritage. To a large degree that is founded by the presence of major pharmaceutical R & D establishments in their locations. Germany is successful in biotech. The UK is successful in biotech, as are the east and west coasts of the US. All those are homes to major biopharmaceutical companies-R & D establishments. A lot of the young spin-out start-up companies actually take their work force out of those big companies. They are trained in our universities and they get an excellent education in our universities, but they do not get a knowledge of the industry or how to do drug discovery and development in life sciences until they join the likes of GSK. It is people who spend time on those big industries and then leave and join a biotech organisation that lead to the success of that cluster.

Dr Richards: There is no doubt that the quality of the research base here is one of those things that has done that. I agree with a lot of what David has said. Historically, it is interesting that one of the reasons we have a biotech cluster that set up rather early on was because various companies shut down. You can end up with tracing a lot of it back to the G D Searle plant shutting down and that spawning British Biotech and a lot of the people into Celltech, and Amersham downsizing, resulting in a lot of people coming into the Cambridge cluster. That is one of the interesting phenomena. It is the movement and fluidity of people across those sectors, across from large companies to small companies and back again, which is very important to the growth of clusters. You can see that that has happened in the more dynamic and longer-lived clusters in America.

Dr Bianco: Within a few square kilometres in the region around MIT, on the Cambridge side of the river in the Boston area, most of the pharmaceutical companies have R & D headquarters: the Broad Institute, the Koch Institute, MIT Mass General. This is a powerhouse of innovation where there is a very strong culture of entrepreneurship. There is a huge distinction between the level of entrepreneurship in the University of Harvard in comparison with many other players in that culture. The Wellcome board visited recently to try and get some learning as to what created the magic at MIT. A great deal of it is emotive.

Dr Goodier: I support what has been said, but I would add that communities grow up where there is a sense of innovation. It takes, sometimes, decades to create that community. Cambridge, as in Cambridgeshire, is a very small community, yet in terms of Nobel prizes it is one of the most successful in the world as compared with, say, the Boston Cambridge. It is not a size issue, necessarily, but more the bringing together and, indeed, intimacy of different scientists working on similar problems from different angles.

Dr Tomlinson: I would agree. It is a diversity of critical mass in one place. Clusters are terribly important. Bringing together science, innovation, the entrepreneurs and the funding is clearly an important part. Again, it is all about creating those critical masses of entrepreneurs and innovation.

Dr Richards: Just to add an aspect on that cluster-it goes back to some of the discussion that occurred in the first group-geography and concentration matter. I agree with the comments on quality of funding, but concentration is about the ease of meeting and mixing of individuals, and about individual risk. A cluster is a low-risk environment for an individual to jump out of somewhere like GSK or the MRC and join a start-up, knowing that it will probably fail, but when it fails they will be able to dial up and go into something else. You can only do that within the concentration, risk environment and culture that occur as, for example, in Cambridge and in elements of London, Oxford and Manchester.

Q25 Chair: That is very helpful. Can I ask a specific question to Dr Bianco? Wellcome introduced the New Venture Fund. What has it added to Wellcome’s toolkit for exploiting bioscience research?

Dr Bianco: Wellcome has three shots on goal here. The first is that we have an investment group that works for financial return to ensure that we have an income to pursue our charitable purpose. They invest across all sectors irrespective of our health care interest, because they are generating the resource with which we deliver our mission. We have my division, which is mission related. We fund projects both in companies through programme-related investment and in the public sector. There is no financial return expectation. This is around mission. In fact, we don’t believe in double bottom lines. Sigma is an attempt to say that we will have a financial return proposition, £200 million in financial return motive, but it will take advantage of the particular knowledge we have of the health care sector. As an organisation we have a fairly deep knowledge of health care, and our investment team pursue, on a financial return, many different areas linked in with distressed debt-the range of options that any investment house would use. This is, if you like, a niche to exploit what we believe should be a competitive advantage to a financial return investor in a sector in which an organisation that lives and breathes health care should have some knowledge.

Q26 Stephen Metcalfe: We are particularly interested in the Stevenage open innovation park. Can you explain how that model differs from what would be considered the more traditional research and development model?

Dr Tomlinson: Maybe I should start and Ted can chip in. I am on the board of the Stevenage Bioscience Catalyst. I am GSK’s representative on that. It is multifactorial. Location is important; it is in Stevenage. What is different about that park is that it is, obviously, adjacent to a 3,500 person R & D facility owned by GSK. There is an opportunity there for information, expertise and guidance to be shared between GSK and the people who occupy that site. I think a lot of that is osmotic. It is in the coffee room. It is like the canteen at the MRC Laboratory of Molecular Biology, where a lot of these Nobel prizes came from in Cambridge. It is those informal discussions that people have that spark a lot of the ideas and innovation that we are trying to create there. The key difference of that park is that it is co-located with a big pharmaceutical company.

Dr Bianco: I would like to add that there are very many different views on the advantages of open innovation where it has worked. For me, an absolutely key one is that the quality of British science in the life sciences is very high indeed, as we have heard. How the industry views that has governed the level of access. Is there an interplay between those factors of public research, the insights it generates and what can be used in an industry that has to be profitable? Open innovation, which we are trying to exemplify there, will be a win for this country if what happens is that pharmaceutical companies believe that Britain is a place where you can have an ongoing, interesting and important debate about what is emerging in life sciences, so they want to be here. It is not about the IP per se and it is not about the profitability of any one small business. The big win is that this is an interesting place with a culture of sharing the learning so that everyone can try and get on and produce the products that society needs.

Q27 Pamela Nash: A BioCity has just opened in my constituency following the success of BioCity in Nottingham. My understanding is that it is a similar model but not situated next to an existing pharmaceutical or bioscience company. Just to be clear, do you think that is key to the success of Stevenage, and what is the difference, in your experience, with the success of Nottingham?

Dr Richards: With all of these it is very early to tell. That is the first point. The second point is that open innovation, this model and clusters are about people, not about buildings. So you have to think about the people. If you want to ask, "Is Biocity going to be important?", ask the question as to how you are reducing the risk for the individual to take the risk and do something to get involved in those clusters. The point that Ian made is that Stevenage will be a success, not as a building but as a place, culturally, where small companies, large companies, scientists and investors mix. If you can get them together in the coffee room, mixing in an environment where they feel they are not taking a high risk to be there, then it will work.

Dr Tapolczay: Just to pick up two points, one from Ian and one from Andy, and tie the two together, the Stevenage Bioscience Catalyst park is a very exciting and interesting new proposition. It is the only park in the UK of its kind where a major pharmaceutical customer-and supplier, for that matter-is co-located alongside young start-up entrepreneurial companies. I think it will be a great success. I certainly hope it will be a great success, and we are working closely with them.

You mentioned BioCity. BioCity, although not having a major pharma company next to it, started by the demise, as Andy pointed out earlier, of a major pharma company. It was Boots Pharmaceuticals originally. Then it was bought by BASF, and BASF’s decision to close their campus there gave BioCity the opportunity to start. The model has proved very successful in Nottingham. Again, picking up Ian’s point, it is about concentration of talent and getting people to mix together. The fact that you suddenly have all these people, all in the same boat, many of whom decided to start companies with people they knew and with people they work with, led to the creation of a very successful culture in BioCity. Exactly the same is happening in Newhouse. You have the closure of a major pharmaceutical R & D facility, and BioCity have shown that they can make it work in Nottingham. Let us hope that they can also make it work in Scotland. The key, again, comes down to availability of funding, to make things like that give it the opportunity to grow. It is like a young seed that has been planted. It needs watering, otherwise it is not going to work.

Q28 Stephen Metcalfe: With regard to the interactions between the large anchor organisation and all the smaller firms and researchers that are around the place, does someone facilitate those interactions or do you just hope that it happens by itself, or is it just, "There’s the coffee. Get on with it."?

Dr Bianco: I am going to pick up the Nottingham question to answer this. We have a couple of groups in Nottingham, one of which has its roots back to MIT and is using very MIT principles in trying to find a way to prevent biofilms on devices. That international link is massively important. It is because of that international link that we think they are more likely to succeed. It might well be in the US, the first traction on utility. The linkages that people want to make should not be seen parochially. In basic science people have collaborators all over the world, and so it is in any other branch of this endeavour.

The second example is that we are funding somebody in the NHS group to develop a device to deal with cataracts. We are going to send them along with the other ophthalmology teams to India to the Prasad Eye Institute where they have a catchment of 20 million patients. That is not something that is easy to scale in Britain, but they believe they are getting going with a catchment of 20 million patients. That provides another form of traction. I would say that the important thing in getting people together is that you can’t do forced marriage but you can give invitations to see a chance. That might lie down the corridor and they will find each other in the coffee shops, so you don’t need to do much about it. If they happen to lie in another continent, you had better just let them know, "Hey, there’s a chance." Wellcome believes that the most we can do is facilitate but using a light touch.

Dr Tomlinson: Facilitating can come in many forms. Some is going to be formal interactions and contractual interactions between the parties. That is not the purpose of the parties. GSK is an arm’s length party here to the SBC, and it is all about stimulating the UK biosciences economy. We put, currently, about £2 billion a year into R & D in the UK. We have 15,000 people in GSK in the UK. We are looking at other ways that we can stimulate the biosciences economy more broadly, whether that is through our investment in the Stevenage Bioscience Catalyst, whether it is through our VC fund, SR One, our commitment for the £50 million going into the UK VC fund, or other initiatives that we have.

It is all about what we can do. It is all about specific and concrete action that we can take to stimulate the UK biosciences situation, because it is quite delicate. A company like GSK can invest in the UK and we can invest elsewhere. I totally disagree with the Patent Box comment made in the previous session. These pieces of legislation are extremely important in order to focus our investment-a global company’s investment-in the UK. You will know that we have recently announced a £500 million investment, including something that is close to my heart as Head of Biopharmaceuticals, which is a new manufacturing plant in Alvaston that we will be building. It will employ 1,000 people and cost £250 million to build. We would not have made that investment absent the Patent Box legislation.

Q29 Stephen Metcalfe: That is interesting. Thank you for that. You did ask this question, but what is or was the single biggest driver behind the opening of the Stevenage open innovation park and campus?

Dr Tomlinson: What was the single biggest driver for us getting into it in the first place? It was a matter of looking at ways that we can stimulate the biotech community in general and different models to stimulate those interactions. There are lots of different ways to skin a cat. We felt that having a park in close proximity to one of the largest R & D facilities in the UK would be a good way to do it. It is an experiment and a model. We think it is going to be successful. Of course it is a concrete step to try and stimulate innovation, and that is what it is all about.

Q30 Stephen Metcalfe: But there must be a commercial aspect to that as well for GSK.

Dr Tomlinson: For GSK, yes, because if there are more biotech companies in the UK, we can, potentially, do more deals with those biotech companies. Half our pipeline of drugs comes from or is partnered with biotech or other pharmaceutical companies. Partnership is a massive part of what we do. Without biotech companies and without other strong pharmaceutical companies, our pipeline would be a fraction of what it is today. It is absolutely critical to have lots of successful biotech companies. Even if we are not involved in them financially, there is an opportunity in the future to become involved in them through business development.

Dr Richards: You have to look at the Stevenage development in the context of global moves in pharmaceutical R & D. The pharmaceutical industry has been moving away from doing the majority of its own R & D towards an open innovation model and getting more from elsewhere. When you do that, these big single centres of R & D, such as those we saw at Sandwich, as we have at Stevenage, and we have had in Scotland, Nottingham and Alderley, start looking like an old model and do not really work. It is part of a move to get a diverse ecosystem on that site. One of the sad things about Sandwich was that it was sitting out there on its own without its ability to create a diverse and dynamic ecosystem. What GSK is trying to do is to create a diverse ecosystem around Stevenage. It happens to be easier in Stevenage because you can live in Cambridge and work in Stevenage. Your partner can live in Cambridge and work in Stevenage. You can work in a biotech in London and not move house. If the company moves to Stevenage, you can be there. In an environment where companies are very fluid-it is that great fluidity of small companies at the moment that is key-that geographical closeness and the low risk to make those moves is an important factor.

Dr Tomlinson: While we are on the issue of invitations, there is an absolute open invitation for you guys to come to see the Stevenage Bioscience Catalyst. We will take you round it and show you the GSK operation there at any time.

Dr Bianco: A key principle when Wellcome entered this as a joint venture park with GSK is that this is not a proprietary relationship. It really builds on what Andy is saying. The whole industry is hungry to learn from outside its R & D walls as well as within. We, as the Wellcome Trust, provided a level of neutrality in the way that the culture of the park would be perceived externally. It is really important that there is a sense that this is a place for all- comers. GSK, clearly by being locals, will have the advantage of being locals, and they are putting in the value, which is really what a big company can do, and shared learning with the small companies. The principle is that the governance arrangements are welcome to all. Everyone does well out of that because they browse off the system. They do not want to gobble the whole thing up. It is quite selective.

Q31 Stephen Metcalfe: I have one final question. Do you think that this model could work for other sectors outside biosciences and, if so, which particular sectors?

Dr Bianco: It has.

Dr Richards: It already does.

Q32 Stephen Metcalfe: Give me an example.

Dr Bianco: Aerospace. When they build a wing, there is collaboration among many companies. Aerospace has a very strong tradition of integrating intellectual property to produce things like wings.

Dr Richards: Obviously, some of the software and tech. I would even point you to Formula 1. That is an example of that sort of cluster in this country.

Q33 Graham Stringer: How does the Francis Crick Institute fit into this new ecology and new business model within the pharmaceutical industry? Will it be a big game change?

Dr Tapolczay: I certainly hope it will be a big game change, looking at the amount of money that is being poured into it. It is a commitment to invest in the basic research of the UK in biomedicine. That is one of the key selling points that attracts investment from the likes of major pharmaceutical companies into the UK. As Ian said, GSK’s business model is evolving and changing. GSK spends a lot of money in this country and wants to continue to spend money in this country, but it will only do so if the quality of the science in this country is world class and world beating in the area that GSK is particularly interested in. That is true of any major pharmaceutical company. The investment in Francis Crick to bring together key research groups, such as the National Institute for Medical Research-NIMR-at Mill Hill, the CRUK and the sponsorship by MRC and the Wellcome Trust, and other partners, is an excellent opportunity to focus expertise in biomedicine in one world-leading, world-class laboratory. The success of that kind of approach has been proven by the MRC time and time again at the LMB-the Laboratory of Molecular Biology-in Cambridge, which Ian referred to and, indeed, studied at. Looking at the success that LMB has enjoyed with MRC’s funding, and saying, "Look, we are going to try and build the same kind of model again," has to be in the interests of British science and, therefore, in British business in life sciences.

Dr Bianco: Paul Nurse came back from being President of the Rockefeller because this was a big carrot. If Nurse is the Aaron Klug of the LMB, we will be well placed.

Dr Goodier: The model has been established before, and most of the major academic centres medically have this aggregation of Wellcome and some biopharma. We have the Wellcome Trust, MRC, GSK, Cancer Research UK all on the same campus with the hospital. It is that integration of patient care with these research facilities that really adds weight to the bioscience research agenda.

Dr Tomlinson: It is great for big pharma as well. The more science there is in the UK, the better for GSK. There is not necessarily going to be an immediate benefit from that, but the whole thing about creating a talent pool of great scientists, great innovation and the entrepreneurs means that we have got to accelerate the growth of these capabilities. If we do, it is to everyone’s benefit. It really is a win-win situation. GSK is terribly supportive of it.

Q34 Graham Stringer: Sticking with the new business model within the pharmaceutical industry, the Drug Discovery Centre at Imperial College do not see it as a win-win situation. They worry and fear that there is going to be a funding gap when it comes to commercialisation in the future. Do you agree with that? Do you think that a technology strategy board will fill that funding gap, if indeed it will exist?

Dr Tomlinson: The answer is not totally straightforward. There is, clearly, investment and more investment required in that gap between academic research, early-stage target discovery and validation, and then making a drug. How you fund that area is not entirely straightforward. It could be by biotech. It could be by initiatives such as the Biomedical Catalyst. I have just agreed to be on the major awards committee of that, so, hopefully, I can help in terms of that investment vehicle. It is multifactorial. TSB, for sure, hopefully, will help. There are the seed VC groups that are being set up. The Wellcome Group has just invested in a big index fund-a $50 million investment for GSK in a $200 million fund-to fund very early-stage science. I do not pretend to have all the answers. We need to do everything we can to support that kind of translational research. That is why the Crick seems to be a great vehicle for building a core cluster of capabilities in translational research.

Q35 Graham Stringer: Is what is at the bottom of this change in the business model major multinational drug companies saying, "It is too expensive now to develop the next generation of drugs and we need public sector funding."? Is that what we are saying, simply?

Dr Tapolczay: I certainly do not think that that is the case. It is very expensive. It is probably too expensive for one single organisation to do everything it has to do in its own house. If then it does it in partnership with other organisations, whether those organisations are publicly funded or privately funded, is not of relevance to the big pharmaceutical companies. What has changed is that big pharmaceutical companies have to show a return on their investment to their shareholders. That is one of the reasons why they are in business. Obviously, they want to produce new medicines as well. One of the reasons why the CEOs get paid is to show a return on investments to their shareholders. It has become increasingly difficult to do that in pharmaceuticals. The costs of doing R & D and the costs of registering new products have spiralled over the last 10 years, so it has become very expensive to do everything. The response of the model, in terms of evolutionary response, is, "Okay, so we won’t do everything ourselves in-house and we will partner with other groups that do it." At present there are plenty of other groups out there for the big pharma companies to partner with. If we don’t keep funding basic research that leads to these new companies and we don’t keep funding start-up businesses that allow those businesses to develop, then those partners will not be present in the future, and then GSK may look outside Britain to find its innovations.

Dr Tomlinson: Big pharma needs to take some responsibility. The costs are going up and the regulatory hurdles are going up, but we did have a culture of trying to industrialise drug discovery and development-and it did not work. At that point, I guess we were quite arrogant in some respects. We thought we could do it all ourselves and we thought we could do it by industrialising science. All scientists will know that science is not something that should be and can be industrialised. As soon as you industrialise science, the innovation goes away. Innovation comes from one person having an idea, or a small group having an idea, and prosecuting that idea to some kind of milestone. That is why we have changed dramatically over the last five years. We used to have thousands of people working in R & D. We would throw a load of people at the problem and we would hope to solve it in that way. Now, we have 50-people groups, with a leader fully empowered to prosecute a very specific area of science. If they work, great. If it does not work, that is Darwinian evolution. You have a model where people are accountable for prosecuting a specific area of science. It is very different from the way all big pharma used to do it 10 years ago. There is a big change in the way that we are going about it.

Q36 Chair: In a way, Dr Tomlinson, you are saying that the pharmaceutical industry was a bit slow on the uptake, because industries like Formula 1, aerospace and telecoms did all this years ago.

Dr Tomlinson: Yes.

Dr Richards: There is a difference. The time scales between an initiative and the output are much longer than in Formula 1. In Formula 1 you make the initiative and you find out within a few weeks whether it is working. In pharmaceuticals, you do not. One of the problems in the industry-Andy is absolutely right to point it out-is that the industrialisation of the drug discovery process was a mistake and a problem. The biggest problem was that everyone did it. The industry, as a whole, tends to do this, because within a large company the career path of an individual is shorter than finding out whether something has worked. There is an incentive. As an individual-I come back to individuals-people have been very successful at jumping on the latest fashion and bandwagon, rising up in their career from it well before they have discovered whether it works or not.

One of the things I am most encouraged about at the moment is that there is a greater diversity of approach and fashion in the sector as a whole, which is really healthy. There was a problem when everyone followed the same fashion. Everyone got into molecular biology and got out of pharmacology. Everyone got into combinatorial chemistry and got out of the whole industry, not just in the UK but worldwide. That has been a very unhealthy phenomenon, and that has changed.

Dr Tomlinson: In our defence, big pharma did get it wrong, but GSK, in particular, was one of the earliest to realise that they had got it wrong and fixed the problem, which is why GSK is in a pretty good position, particularly in terms of its UK investment base today, whereas others are not necessarily in as good a position. We have been early adopters of this small, focused research model, which is very akin to the way that biotechs work in the UK.

Dr Bianco: We have run an experiment for the last five years called Seeding Drug Discovery. The board agreed £91 million to specifically address small molecule discovery of what is called "the lead optimisation stage", which is one of the gaps that is famously difficult for public labs to address. What has turned out is that transaction size is critical. We have this general translation scheme. We did not have £3 million to £5 million per transaction available. That is what it takes to do that step. That lead optimisation step, if modestly done, costs in the ballpark of £3 million, £4 million or £5 million. One of the things with all of these schemes is that one needs to be cognisant of what the translation size is that really matters. If you have a scheme that dishes out money at one level, which is only at £35 million, it is going to be a poor fit for some people’s needs. If it only puts out £35,000, it is going to be a poor fit. You have to ensure that the rules of engagement do not prevent you from addressing a need. We created this scheme because we knew it was going to be in the order of £3 million to £5 million per go. So £91 million bought us 30 projects. The board has just agreed another £210 million for a second five-year period. Is it a success? We can’t answer that yet, but we know that about a third of the projects are still standing on their legs at the end of our funding-only a third. That is why this is tough stuff to do. Our board has to take that on the chin. Are they willing to do it?

Q37 Stephen Mosley: You have talked about the problems with the big pharma model. Of course in the UK we have a big customer model as well. We have the NHS, which is the major purchaser of medical and pharmaceutical products. How much influence does the NHS have on the bioscience market in the UK?

Dr Richards: Let me just put this as an investor in early-stage companies. I work in angel groups, and angel groups are full of people from the technology sector as well. This is not just a statement about drug discovery; it is a much broader comment. I come back to some of the points that David Connell made in the earlier session. Customer traction is one of the most attractive things for any investor. There has been a situation where any business plan, business model or business idea that comes up that says, "By the way, the first thing we are going to do is sell into the NHS," just makes it uninvestable, because the NHS does not take up, let alone new drugs, new technologies, new software systems, new anything. It is notoriously hard to sell anything new into the NHS. That is partly a cultural thing. Partly, there are some elements within the NHS that, for one reason or another, have a "they shall not pass" mentality. It does make it incredibly hard to innovate in the medical field-medtech, health care, IT-in an environment where your local market, who are the easiest people you have to reach to talk to as customers, are hard to access.

I hope and I think that is changing. For my sins, over the last couple of years, I have made some investments with other people in companies that do intend to access the NHS as their first market-in fact some of them as their primary market. I hope that that works but the jury is out. It is really important.

Dr Goodier: That is something I hear a lot. The NHS does tend to run as a top-down command-and-control massive organisation, so, when it does IT, it does it as one massive contract and, inevitably, fails. We do not seem to be able to find the middle ground. The foundation trust movement is a very good movement for encouraging innovation and encouraging academic centres to find their own place in the sun. At the moment, the tariff structure is such that the Shelford Group, for example, which is, probably, the 10 most prestigious academic medical centres, in 2010-11 had a turnover of £7.3 billion. If you take away the under-the-table supplements because of potential deficits, the group made a loss of £3 million. Therefore, there is not, in a business sense, the capacity to be able to invest in IT. As I reflect upon it, we are falling behind as a health system compared with our international comparators because what we all want is to have good electronic records, an e-hospital, with databases that can be interrogated for research purposes as well as for individual patient care. We are way behind the American equivalents there, some of the Dutch and so on, because there is no spare cash at the hospital level. The spare cash is at the SHA level.

Q38 Chair: Presumably, if we do not get the data structure correct, innovations like stratified medicine will be damaged inexorably in the UK as a research activity.

Dr Goodier: We are very concerned at the Shelford Group because so many of the prices set for treating patients are set on averages. If you suffer from asthma, you can have three nebulisers and go home, or you can have a week in intensive care and two weeks on a ward. The price is set at an average, and that suits more the smaller district general hospitals, whereas the academic hospitals tend to get the more complex patients and, therefore, are chronically underfunded. This is a serious threat in terms of the future of the biopharma industry in this country. If the core-not just the Shelford Group-20 academic medical centres in this country are not, as in other countries, given supplements because of the complexities of their patients, because they are seen as centres of excellence where they need to be the leaders in IT and so on, necessarily they are poor partners for the biopharma industry and technology.

Dr Tapolczay: While I agree with everything that has been said, I also see it as an opportunity. If the problem is there but it could be fixed, we are still the only country in the world with an NHS. If we can find a way to allow engagement between the biomedical community in the private sector and the NHS more effectively, then it has to be a very positive step forward for both the NHS and the biomedical companies in the UK.

Dr Richards: It is deeply frustrating that we are the best situated country to do personalised medicine because of the NHS. If we can gather the information from well collated records and use that-we have everything in place-and if we could do it, it would be the big game change.

Dr Bianco: The motive when we launched the Health Innovation Challenge Fund in partnership between Wellcome and the Department of Health was exactly how to drive innovation. The areas that we called for proposals are agreed with the Department of Health. That is an attempt to say, "What do they want? We will try and build what is needed." One of the disincentives, which is a real problem, is that if you produce, for example, an invention that reduces bed stay because the surgical procedure is less invasive, it is the cost centre for the beds that gets the advantage and the risk is taken by surgery. Who should take the big decision? The next layer up. It is a well-established problem, but you can get unintended consequences. Who wants to have that sense of responsibility for the cost centres? But you do not really want this downsizing. Adoption has become a problem because the reward system is not necessarily linked.

Dr Goodier: To bring a more positive note to it, the work of Professor Dame Sally Davies has really improved biomedical research in this country tremendously over the last three years, and a number of initiatives have just started but are too early to assess, which Sally has been the author of, which are very promising. What we are all trying to do is to get comprehensive electronic records with genomics attached to them, because, as I understand it, what the biopharma industry wants is not to do everything but to have very specialised interests of care. Once the research is conducted, we offer personalised care to the patients who are engaged in this. Particularly, Imperial, University College, Oxford and Cambridge are very focused on that, but all of the academic centres are striving in that direction.

Dr Tomlinson: We support the reforms of the NHS. Obviously, it is early days. The key here is to come up with a system. It is this win-win situation, where, "You can help us to help you and support the uptake of innovative medicines." We believe that the medicines we are going to be able to create can make a big difference to the patients in the UK. There is definitely a partnership here to be established and worked on. It is all about supporting innovation because without the support for the innovation there will be no innovation, and without innovation there will be no advance in medicines for patients. It is a partnership.

Q39 Pamela Nash: Which countries do you think are our main competitors in bioscience?

Dr Tomlinson: Obviously, the US. We have a big R & D presence in the US as GSK. Talking about clusters again, if you look at the Boston biosciences cluster, it is bigger than the whole of the UK put together. Why is that? Again, they have been at it longer, there are more entrepreneurs and more large companies have sited and invested there. In fact, they have attracted companies from outside Boston into Boston. I am talking about the likes of Amgen and others, which now have large research facilities in Boston. Again, if you have that critical mass of talented scientists who, as Andy said, are not fearing for their jobs as there is always somewhere else for them to go, it is incredibly empowering. From these groups, you can spark up little biotechs all over the place. Entrepreneurs are going from one company and making it successful. Maybe the next entrepreneur is not successful, but they are moving on to the next thing all the time. We have that a little bit in the UK, but it is nothing like the way it is in Boston. We can build upon that if we make these specific and concrete investments in the biosciences opportunity in the UK.

Dr Richards: Just to add to that and go on the US model, the US has a number of things, including a health care system that uptakes innovation somewhat earlier. One of the other reasons why you look at Boston is not just its longevity, but this is about the valley of death, as this hearing is. There is no doubt that in the US the financing continuum is more complete or there are fewer discontinuities than there are at any one time. Those discontinuities change and move. It is one of the things that is very hard to assess. At the moment there are specific ones. It means, as an investor, you invest in things and you are most worried about the financing risk. That is less of an issue in the US. It has allowed companies to grow bigger.

The Cambridge Phenomenon Conference last year was a conference about tech as well as life sciences and biotech. A leading US venture capitalist said, "You guys have created the most effective corporate veal factory in the world." He was talking about Cambridge. What he meant by that was that we were creating beautifully formed high science-great little companies, which were then being sold very early, rather than financing them up to the next stage. While there is a gap early, the moment one of those gaps is on the public market, no one IPOs the company. So ventures, angels, high net worths and corporate venture are investing in companies to get to a certain stage, stay virtual, get sold on, rather than grow. In Boston, you will find that there are those companies that have made that jump to the next stage and become $1 billion, $5 billion or $10 billion companies.

Dr Tapolczay: I agree with everything that has been said, but I think your specific question was where our main competitors are in bioscience. They are Germany, for sure; Scandinavia, for sure; in Europe; obviously, the US. Then I do not think we can-or we do at our own risk-ignore China. There is a phenomenal amount of investment, the kind of investment that this panel would dream of having at its own disposal, being pumped into basic academic research in Chinese institutes doing medicine. The number of high-quality publications coming out in China now is overtaking us. We are becoming third in the world. Historically, for the last 50-odd years, we were second in the world to the US. China is now starting to overtake us. Is that a real threat or can we do something with them? Because Germany has a long and well-established history in biotech, much like ourselves, and many of the big pharmas started life in Germany, they could be seeing us as a competitor. Scandinavia, potentially, similarly. The US, clearly, will see us as a competitor. With China, we have an opportunity to become a partner rather than a straight competitor because the one thing that China has in spades is plenty of cash, but the one thing they don’t have is knowledge of this industry in the translational space between lead optimisation and pre-clinical to clinical development.

In terms of manufacturing, they can outperform us any day of the week on scale, but it is that knowledge-based bit in the middle where we can strive to create a really strong partnership with China that, potentially, can bring economic benefit here in the UK. It is not just teaching them what we know. It is becoming a true partnership so that economic gain in China is mirrored with economic gain and growth in the UK.

Dr Goodier: It depends on what aspect of research you are talking about. In experimental medicine and early-phase research we are still regarded as very high quality. By the time you get to phase 3 clinical trials, frankly, Novartis would just put that where they could do the trial the cheapest and get the easiest return. So all of the BRIC countries and quite a few others are competitors for that sort of research. I would agree that China is amazing in the way they are making progress. We have a lot of contact with China, and the partnership model is, frankly, the only way to go.

Dr Bianco: It depends on which bit of the valley of death you are talking about as to where our main competitor lies. This conversation illustrates that. The US, definitely, if you are talking about the interface between basic science in the public sector and business, which is why the cluster in Boston is the way it is. Why is that? I believe that is because it is underpinned by clarity of motive. MIT gave us some statistics when the board visited. In 2009 figures, they had $2.3 billion coming in in revenues across US academic institutions, but it cost $54 billion. The research base is $54 billion and it brings back $2.3 billion. That is 4.8%. This is no way to make money, but it creates 500,000 high-end jobs. Where is the win? The win is in the richness of your entire sector, not the individual companies.

MIT has a policy that it will not allow its investigators to roll into the company. You can be a consultant but you stay in the academic department. You might be a serial entrepreneur, so you do what you are good at. You advise to ensure the success of the enterprise you have spawned. These are very important principles. They do it because they believe it is their mission as an educational establishment and as an establishment endeavouring to put out societal good. They get enough return that they can reward the founders and others to create the entrepreneurial instinct. Six institutions across the US bring in the vast majority of that $2.3 billion of revenue receipts, but if they have a profitable business it is probably selling T-shirts. That is the local joke. They know what their margin will be on selling T-shirts, but they do not know what their margin is on intellectual property.

Pamela Nash: You have covered most of the points that I wanted to raise. Thank you very much.

Q40 Caroline Dinenage: I have a quick question. I know you are here to talk about the bioscience sector, and it clearly is a great British success story. I wondered what other sectors could learn from the experience of building this success, the pitfalls and the quick wins.

Dr Richards: It could be smart about ensuring that a financing continuum of investors who understand the space grows up. When the financing continuum is too diffuse and too spread apart, it does not work. It is a challenge at the moment in areas like food and agriculture, elements of bioenergy, energy and renewables. Bringing that financing continuum and investors together, with the academic and entrepreneurial base, is really important. I don’t quite know why it happened early on in the life sciences area, but it did, and it has been growing. We have the City of London, so we have a heritage in investment and investors. They get, periodically, interested in areas and build on that. They ensure that in areas that we are going to focus on we can have a concentrated investor base and a connected investor base as an important thing.

Dr Tapolczay: The point Andy makes is really important, but we also need to consider that there may be different types of investor that will be interested in a particular investment during its evolution. Clearly, the venture capital community and most of the professional investment community are interested in a return on whatever cash they are putting in. There is a second potential investor, which was discussed in the earlier session, which is the state itself-public cash going in. For publish cash, I do not believe that the return should solely be how much cash we have generated in return on the investment. We should consider, and I am sure we do consider, other societal benefits associated with funding that particular project. They may be unmet medical needs in patient populations where, commercially, you are never going to make much money because there are too few patients in the UK. The medical charities in the UK invest very heavily in the area of unmet medical need in areas that major pharma companies would not want to go into because the return on investment does not make sense, and certainly venture capital firms will not want to go into them because they cannot see an exit.

There is a much stronger need in the UK for a greater integration between public and private funding. With many fantastic pieces of scientific discovery, at the point at which they are discovered, it is not obvious how you are going to make any money out of them. They need funding in order to be developed to a point at which, suddenly, somebody goes, "That’s it. That’s how we are going to make money out of this." When you get to that point, there is plenty of VC money floating around or professional investor money. It is how you get from the stage of, "Well, it looks really interesting, but we really don’t understand how anybody is ever going to make any money out of it," to the point where suddenly the investment community is willing to take it on. In many cases, it is a bit of a relay race. You need different runners for each leg of the relay race.

Dr Tomlinson: I do not think you can overestimate the importance of the critical mass of talent. In the end, the reason that Cambridge is the way it is, and the reason why it was so easy, relatively speaking, to set up a biotech company in Cambridge and to hire scientists in Cambridge, is because there are loads of scientists in Cambridge. In a way, it is as simple as that. Yes, you hire people from overseas and you hire people from outside Cambridge, but half the people who worked for Domantis were from a 2-mile radius around our facility in Cambridge and came from the LMB, the university and the other biotech companies in Cambridge. That is why clusters and focusing investment in the clusters are so important, because they grow and you get that snowball effect. That is what we need to ensure when we are considering how we are going to treat London, Cambridge, Oxford and Stevenage, the triangle, and all that stuff, going forward. We need to create the critical mass. If we do not have it, we will fail. If we do have it, we can be much more successful than we have been to date. I agree that we have been pretty successful in the biosciences sector, but it is nothing compared with some of the US cities. If we can just keep the ball rolling, keep the momentum and make the investment, be very specific about what we are going to do and make concrete moves, we can be more successful. Clusters, for me, is the way to go.

Chair: I think this follows on very neatly because it is challenging the other side of the coin as our final question.

Q41 Roger Williams: Just to follow on from Dr Tomlinson’s comments, we understand about the golden triangle, the critical mass and the concentration of scientific expertise and scientists. Is it important to be near London as well in order to be near financial institutions that will invest in these opportunities, or will the investors go where the expertise is?

Dr Goodier: I would suggest, from Cambridge’s point of view, that this is a community and they feed off each other. The scientists are there, as you have heard described, and the money men follow the scientists because they know that the deals are to be had there, the start-up companies and so on. It creates a community that feeds off itself.

Dr Bianco: We had an interesting debate with Merck, who came over to talk about what the industry was looking for. They gave a great anecdote about their in-licensing groups. They had no in-licensing group in Europe. Consequently, they picked up no projects. Then they set one up here in London with tentacles reaching into continental Europe and they started hoovering them up. They noticed they were hoovering them up at a greater rate than on the west coast of the US. Why was that? Because they had not put an in-licensing team in there. It is massively parochial. Stuff under their nose was getting hoovered. That is because it does not happen in a moment in time. They don’t have a group come in, do a show and tell, and say, "We are buying today." It is a dance. There is stuff that goes on; there are tos and fros: "This is interesting but..." Unless there is a feeding frenzy around that particular product, and you are lucky, there is going to be a dance. That means that proximity matters. They found out that it completely mattered, even to the point that they were not getting from the Bay area what would seem fairly obvious that they could have got; they just did not have a team there.

Q42 Roger Williams: I asked that question because one of the more outspoken members of the other panel did suggest that some of the more peripheral universities ought to concentrate on teaching rather than research that could be spun out into commercialisation. I come from one of those more peripheral areas and would like to see our universities involved in that high-quality work as well. We are told, for instance, that good teachers are always up to their elbows in research and commercialisation. From my point of view, teaching and research go together.

Dr Bianco: The University of Dundee is an absolutely fantastic example. There is no reason, geographically, why it is well placed, but it has a fabulous tradition in drug discovery, in the way that the kinase group has become a magnet for many industries. It has just been deliberate.

Dr Tomlinson: They have just done it. That is the thing about Dundee-they have done it. They were sending out flyers even 50 years ago. Flyers were coming through my door. They were just doing it and that is what it is all about. You can’t just talk about it. You have got to do something to make these things happen. While it is true that a lot of the biosciences R & D is centred around the south-east, if you look at manufacturing, there is a lot of that in Scotland and in mainland Ireland. There is manufacturing all over the place. We are going to put a biopharm plant in Cumbria because there is talent there-talent that knows how to do manufacturing. There are people on the site already. There are people round and about who you can bring in to do that kind of work. It is horses for courses. There are certain places where there is a critical mass of certain expertise. If a university has an expertise in a particular area, then good for it. It should focus on that and make the most of it. It should not just focus on teaching. If it has a critical mass of expertise in a particular area, there is no good reason why that university should not exploit it.

Dr Tapolczay: I would agree. In one sense, geography or location is not particularly important. What is important is that you have the right team in order to do it. Dundee, clearly, had the right team. When they started in drug discovery, they realised that they did not have the right team so they imported the right team. They brought the right team to them. They hired people who were ex-GSK, who knew what drug discovery was about, and they put them there. The industry does not care. AstraZeneca does not care whether they are collaborating with Dundee, Aberdeen, Manchester or London. What they care about is the quality of the team that they are collaborating with and the quality of the science. To your point, is it a waste of money to try and do this activity at your university? Absolutely, if you do not have the right team. If you have the right team, it will not be. Dundee is a perfectly good example of that.

Q43 Roger Williams: I visited Syngenta recently to look at the work that they are doing. They were telling me that in identifying agrochemicals they are very much curtailed by EU regulations in terms of percolations of water and these sorts of issue. Do EU regulations hamper your type of science and investments?

Dr Tapolczay: That is probably one for you guys.

Dr Tomlinson: No. Obviously, companies like GSK have a responsibility to become more green. We have investments in green chemistry. We are going to be setting up a laboratory in Nottingham. It is our obligation to become more green, to have less waste, to use less water and all that kind of stuff. We have quite a big programme in place to make ourselves more green and to exceed all the regulations that exist. It is important that we make those moves. It is simply a corporate responsibility to do that as a company like GSK.

Q44 Roger Williams: The point they were making was that they are a worldwide organisation and it was much easier to produce new chemicals and new reagents in other countries than it was in the European Community.

Dr Tomlinson: We have a considerable manufacturing base in Europe and especially in the UK. So I don’t see it as an issue for us.

Dr Bianco: The European regulation that has been brought to my attention that is most problematic for a small company is employment law. You have to take on people with a longer-term commitment than you have cash flow. That can create very extreme problems. For the very small companies it is employment law issues.

Q45 Roger Williams: With the Regional Development Agencies not existing-we never had one in Wales-as I understand it, and talking to some people involved in your sector, they were very useful in producing capital in order to set up fairly large research organisations. Did you find that to be the case or will they be missed when they are not there?

Dr Tomlinson: The East of England Development Agency did contribute to the Stevenage Bioscience Catalyst, as did the TSB. I guess that most of the focus is now going to shift on to TSB being the main vehicle to pick up the slack that has been created by getting rid of the RDAs. Again, we need to focus on what that is going to be, how it is going to work and how those investments are made to make sure that they are as effective as possible. That is my understanding.

Dr Richards: The RDAs did some useful things. Was it the most efficient mechanism? Probably not. You ended up so often with discussions about the north-west versus the north-east, when it should have been the UK versus Boston, Shanghai, Palo Alto or San Diego. That is one of the problems in a global industry like ours.

Dr Tapolczay: I would 100% agree with that. Having funding available has to be a good thing. Whether it is managed properly, administered properly and whether the rules of engagement with the fund were too complex in the RDAs, those are all debatable points. Having funds available has to be a good thing. My experience of the RDAs was that it took an incredibly long time to get to a decision point. Frequently, I could get money from other sources faster than going through the RDAs. It cost businesses, because if I went to the venture community I was frequently giving large chunks of equity away to the venture community. Therefore, it was more attractive to try and get RDA funding, but, bureaucratically, it was difficult to handle.

Chair: Gentlemen, thank you very much for your evidence this morning. It has been extremely helpful.