House of Commons - Bridging the valley of death: improving the commercialisation of research

Bridging the valley of death: improving the commercialisation of research - Science and Technology Committee Contents

3 Connecting science with industry

88. The importance of the university sector in attracting inward investment by business was made clear to us on several occasions.[134] BP, in its evidence to us, highlighted the value of academic research and development to where they site their own research and development activity:

BP spends 40% of its total research & development funds in the UK and has three major research centres in Sunbury, Pangbourne and Hull. The excellence of UK academic research is a key factor in determining why companies like BP choose to site their R&D activities in the UK.[135]

A fundamental ambition of UK innovation policy is to connect the science base and industry. In this chapter we explore the Government's innovation agency, the Technology Strategy Board (TSB) and how the university sector is encouraged to facilitate and advance innovation policy.

Technology Strategy Board

89. "The TSB is the Government's prime channel of support for business-led technology innovation".[136] The TSB describes its work and role on its website:

Our role is to stimulate technology-enabled innovation in the areas which offer the greatest scope for boosting UK growth and productivity. We promote, support and invest in technology research, development and commercialisation. We spread knowledge, bringing people together to solve problems or make new advances.

We advise Government on how to remove barriers to innovation and accelerate the exploitation of new technologies. And we work in areas where there is a clear potential business benefit, helping today's emerging technologies become the growth sectors of tomorrow.[137]

FUNDING

90. Sir Peter Williams, Treasurer of the Royal Society and Chair of the National Physical Laboratory, was concerned the TSB would not have sufficient funding to achieve what was expected of it, stating, "you can never have too much money in this sector. [The TSB] is small by comparison with, if you like, the private equity players in this space, and, therefore, being brutal about it, its impact will be commensurately small if we are not careful".[138]

91. Rolls Royce also questioned whether the TSB was adequately resourced even to operate its core remit of funding collaborative research:

The TSB has developed efficient mechanisms for supporting collaborative research. Their funding, at just over £300m p.a. is, however, inadequate for the task in hand.

The Government is spending over £3.5bn on low TRL research, and cannot hope to adequately capture the benefits from this investment when spending so little on support through the valley of death.[139]

92. Iain Gray, Chief Executive of the TSB, did not think that the balance was correct.[140] Sir John Savill representing Research Councils UK was sympathetic to that view, though he was clear that any increase in the budget to commercialise should not be funded through a cut to the Science Budget.[141]

93. Evidence on the TSB uncovered a number of criticisms on small issues but, overwhelmingly, there was an appreciation for their work and their funding programmes and a consistent call for funding to be increased.[142] The key programmes are SMART Awards[143] and the SBRI.[144] Dr David Connell recommended a huge increase in SBRI funding[145] and Sir Peter Williams told us that the Government need to pick some winners and give them generous funding. He considered the SBRI a decent vehicle through which to do this but it would need more extensive funds than those envisaged by the Government.[146]

94. We examine the role of SBRI in relation to Government procurement in more detail later in this report.

95. SMART Awards are a key funding initiative for proof of concept work[147] and have been subject to strong competition; Rolls Royce told us that the competition for those awards indicated the strength of the technology marketplace. The University of Birmingham was concerned that the inability of universities to gain access to SMART Awards would push university spin-offs into commercialisation too early just to become eligible.[148] Although there are other sources of funding for proof of concept work,[149] the University of Bournemouth[150] and others[151] argued that the total amount was insufficient. The University of Edinburgh stated:

The valley of death can be encountered at various stages of the commercialisation process, but is most often acutely felt in pre and early stage company formations where there are gaps between the early stage/proof of concept nature of the technology and the beginning of increased production and generation of significant revenues[152]

The Association of Independent Research and Technology Organisations (AIRTO) (V45) suggested that better proof of concept funding would encourage more equity funding by effectively reducing the risk of investment.[153]

96. We recommend the Technology Strategy Board examine the current provision of proof of concept funding to universities and small companies and report to Government a coherent view of the amounts of funding available along with a recommendation on whether there exists a shortfall of provision of these funds and whether a consolidation of provision into a single programme would be helpful.

EFFECTIVENESS

97. We sought views on the Technology Strategy Board (TSB) and how effective its intervention was in stimulating innovation and helping companies across the valley of death. Many responses indicated that it was still too early to make that assessment.

98. Others, however, were critical. We received evidence suggesting that TSB funding might not suit small businesses,[154] public sector research organisations or research and technology organisations.[155] The SME Innovation Alliance recommended that the TSB stop "playing at 'Dragon's Den', themed competitions, timed 'calls' and [...] stick to funding projects quickly and simply on pure merit".[156] Plant Bioscience Ltd told us that "TSB funds are slow to obtain and involve far too much bureaucracy".[157] Sir Peter Williams was more challenging. He was supportive but had some concerns:

I am a fan of the TSB in concept. In fact, in my SET and the City report, I single them out as being worthy of receiving more Government funding and having more clout and influence. I always fear in this country when things become centralised [...] that they become risk-averse at the same time. [...] if we are here criticising Government for becoming timid and the City for being risk-averse, we have got to show by what the TSB does that it is bold, brave and is not risk-averse. That is my only fear.[158]

99. His main criticism was that the "central executive did not have enough absolute power to just get on with the job".[159] Imperial Innovations told us that "within our company portfolio we have many examples where the TSB programs have been a great catalyst and shared risk method of facilitating small growing companies to collaborate on commercialisation with larger companies without having to give up early rights".[160]

100. There is an evident need for an innovation agency in the UK and it makes greater sense to ensure the TSB and its schemes evolve to meet this need than create a new organisation. It also makes sense to concentrate the innovation function within a single agency to ensure there is coherence and consistency within the system. We support the current Government's approach to its innovation policy.

101. One of the determinants of whether the TSB is effective will be the success of the Catapult system, a key policy intended to bring together SMEs with university based research and one we commended in our report Technology Innovation Centres in 2011. One measure of this success may be how involved smaller companies are with the Catapults and how regularly companies of that size, which have serious growth potential, access catapult facilities.[161]

102. However both Rolls Royce and ADS[162] warned us that pressure from Government for the Catapults to start earning revenue too quickly could potentially lead to a distortion of their priorities[163] and stifle the growth of their capabilities.[164]

103. We consider it vital that the Catapults are made to work. We ask the Government to confirm to us that they will not seek to push the Catapults to generate revenue but instead allow them to grow slowly and organically with a focus on developing the necessary capabilities to support innovation.

THE NEED FOR LOCAL KNOWLEDGE

104. We received mixed commentary on the loss of the Regional Development Agencies. While there was no general desire to see them reinstated and some definite criticisms of their work, we did see some instances where particular agencies played a significant role in connecting local business and research organisations. While we found Sir Peter Williams compelling in his evidence about the potential overplay of regional policy, we have concerns that the TSB are properly resourced to facilitate the necessary local components of innovation activity that was once the remit of the RDAs.

105. Douglas Robertson, UnicoPraxis, highlighted the value of advice in addition to funding:

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[165]

106. This was supported by small technology businesses we spoke to. Dr Francis, Technical Director, Byotrol Technology Ltd, told us:

our relationship with the North West Development Agency and through some of the business contacts was very good. It was local; they were quite often in Daresbury. You could meet them and have a coffee and talk to them about what you were trying to do, and they would help to guide you as advisers.[166]

107. Dr Worswick, Chairman, Cobalt Light Systems, added:

The regional support was pretty well organised. Whether one is in favour of regions having their own budgets and so on is another matter, but the network they created was very helpful when you applied to them.[167]

108. Another source of local advice that has been lost to business was outlined by Stephen Welton, Chief Executive Officer, Business Growth Fund:

If the banking industry have a challenge, it is that they have centralised their model so much that the credit committees are all-powerful, and a lot of the local credit officers in the regions do not necessarily know what the outcome of the credit committee is going to be. That is not empowering the people on the ground, who have to make decisions that are pretty fundamental. Do you trust the people you are backing? The judgment of people, understanding how they sit within their local community—all these very old-fashioned business principles—are critically important, and we need to do more to invest in that.[168]

109. We have concerns about the ability of the TSB to provide real local information unless they have the funding and resources to develop regional points of contact that can talk knowledgeably to local businesses. We recommend that the Government consider how they can resource the TSB to provide local level advice to technology businesses.

Leveraging our research establishments

110. The Government, in its evidence to us, pointed out that the Higher Education Institutions generated external income of over £3 billion in 2011/12. What may be surprising is that only 2-4% of that money was due income from licensing and sales of shares in spin-outs. The greater part, in cash terms, was the conduct of collaborative and contract research, consultancy and the provision of professional training.[169]

THE VALUE OF UNIVERSITIES

111. The university sector as it contributes to academic research and development is a global success. A report, produced by the Department for Business Innovation and Skills, looking at the competitiveness of UK said:

While the UK has far fewer researchers than larger countries such as the US and China, as a country, it is far more efficient in terms of output per researcher: of the top five research nations (based on article output in 2010: US, China, UK, Japan, Germany), UK researchers generate more articles per researcher, more citations per researcher, and more usage per article authored as measured by global downloads of UK articles.[170]

112. The challenge for Government is how that world class academic research can be translated into commercial activity. Despite the problems outlined throughout this report, there are many instances of fruitful collaboration between business and universities. In its written evidence the Government provided examples of how universities have been involved in the development of new businesses, participated in the improvement of existing business, improved public policy and services and attracted foreign investment.[171]

113. David Connell, of Cambridge University, described the myth of the role of academic research:

Besides being intuitively attractive, the myth surrounding university spin-outs has been perpetuated as a result of premature celebration by government and media of high profile, VC-backed spin-outs when they are still at a pre-revenue stage, together with a tendency to incorrectly ascribe university research origins to successful Cambridge companies such as ARM and CSR.

There is no doubt that policies could be put in place to improve the commercialisation of academic science. However, the reality is that at Cambridge, just as at MIT, it is entrepreneurial university alumni rather than research results which play the key role in building successful new S&T companies. This distinction is important as it has profound implications for policy.[172]

114. The UK Deans of Science questioned how far universities should be expected to commercialise their research activity:

In addition to the financial risks and the challenges of finding commercial partners there is a question as to how far a university should extend its traditional role of teaching and research to encompass commercial activities that others are better placed to do. Thus many reports have suggested that universities and public research bodies should regard the IP they create as supporting wider societal and economic benefit rather than expecting commercialisation to deliver a significant income stream[173]

115. The Wellcome Trust was concerned that pressure from Government to increase the monetary value of knowledge exchange with business misunderstood the broader nature of the relationship with business and the longer term public benefits:

Universities should be recognised for the broader value they add to the economy, for example through tacit knowledge and the provision of skilled graduates, rather than just the external revenue they generate.[174]

116. Plant Bioscience Ltd argued that universities' genuine need to pursue world class scientific progress was often fundamentally incompatible with business need and that the incentives for academics to do excellent science made them less inclined to pursue business related work and added:

We find it often quite challenging to find public sector researchers interested and able to conduct some of the applied proof of concept work that is needed even if funding can be found.[175]

Cambridge Environmental Research Consultants Ltd agreed that universities may not be capable of the kind of development that innovative small companies need:

Academic Research Council grants or short period DTI, TSB etc. research projects do not take the place of long standing applied research laboratories, which also play a role in the development of small companies. Indeed where they have existed in the UK some have been closed down such as the NE wind energy centre. The policies of the present UK Government for technology centres announced by the present government may provide some stimulus to commercialisation of research, but they do not have the same focus or continuity or labs based on a specific industrial objective.[176]

117. UK universities collectively constitute a world class research base which is, consequently, attractive to foreign businesses. Even if they are not focussed on commercial considerations, they will inevitably generate ideas and discoveries that are of commercial value.

118. They are an important facet of the UK innovation ecosystem but a resource to be drawn on rather than a primary driver of commercialisation.

119. The value of universities also lies in the people they produce: not only the academics who will engage with the cutting edge research that is so vital to innovation[177] but also those who will provide the technical backbone to the knowledge economy. Highly skilled technicians have a valuable role in academic and private sector companies. Sir Peter Williams, Treasurer of the Royal Society and Chair of the National Physical Laboratory, told us that "the technician class is a forgotten, underrated and undervalued one in this country and has been endemically".[178]

REALISING THE BENEFITS OF UNIVERSITIES

Knowledge exchange

120. Tim Crocker, of the SME Innovation Alliance, told us that the current models for knowledge exchange were predicated on universities pushing information into businesses but, he argued, the flow of information should be two way. He thought there could be a more effective sharing of knowledge if there was more mobility of people from business into universities and back again:

in the UK we have the KTP finance system—knowledge transfer—which assumes transfer of knowledge from the university outwards. If you are on a peer-to-peer basis—in lots of cases our companies are more advanced than universities—there is no funding mechanism at all by which we can engage with the universities and our time and theirs can be paid for. All we can ever do is use TSB money to subcontract to them, and that is a very unsatisfactory relationship. [...] Visiting professors [in Germany] spend half a day a week teaching, and the integration between universities and industry is entirely on a peer-to-peer basis.[179]

121. This perspective was endorsed by Tim Bradshaw of the CBI who thought that the two way flow of information between universities and business was essential.[180] Plymouth University wrote that they would like to see "national schemes such as 'senior internships' or 'industry-academia secondments' where the exchange of senior personnel can create productive and strategic relationships".[181] The UK Deans of Science suggested "initiatives to encourage secondments to university departments".[182]

122. However, the Campaign for Science and Engineering suggested that the Research Excellence Framework (REF) might discourage "universities from hiring staff with backgrounds from industry due to gaps in (or absence of) publication records".[183] Sir Tim Wilson's review of collaboration between universities and business also looked at the topic of knowledge transfer through secondment of people but followed the model of transferring knowledge from universities to business, making no mention of secondments in the opposite direction.[184]

123. We are sympathetic to the demand that universities become more accommodating to non-traditional backgrounds among their academic staff. We regard it as axiomatic that the extended presence of people with an industrial background within university faculties would facilitate a greater understanding of commercial imperatives and the most effective ways to engage university resources within businesses.

Technology Transfer

124. David Connell argued that innovation policy should encourage businesses to draw upon university resources rather than pushing academics into becoming businessmen.[185]

125. An important facet of commercialisation of university based research is achieved through technology transfer offices (TTOs) in universities. However the Scottish Lifesciences Association wrote that "each university having its own TTO can become a significant barrier to larger companies seeking commercialisation agreements with a number of institutions".[186] In response the Scottish Government plans to streamline the technology transfer functions of all Scottish Higher Education Institutions through a single office that will have representatives within each institution.[187] HEFCE wrote that English universities are also consolidating their commercialisation activities.[188]

126. The Society of Biology suggested that there needed to be recognition of academics who engage in commercialisation activity:

The excellence of a University or academic has until now been judged at review on the basis of scientific achievement, publications and achievement of grant-funding, with less focus on translation and impact. Thus the former have remained academic priorities. Greater recognition for achievements such as filing IP and forming industry collaborations (at a realistic value) could address this deficit and it may be redressed by the [Research Excellence Framework] 'economic impact score'. Knowledge transfer should be recognised as a contribution worthy of academic recognition and reward.[189]

In 2003, the Lambert Review of the collaboration between business and universities indicated that:

The main challenge for the UK is not about how to increase the supply of commercial ideas from the universities into business. Instead, the question is about how to raise the overall level of demand by business for research from all sources.[190]

127. We are concerned that driving an innovation agenda too aggressively through universities may have diminishing returns with regard to commercialisation and risk damaging the academic research that is working well. We recommend that the Government's objective should be to create a commercial demand for university engagement to which they are already primed to respond. This echoes and reinforces the point made almost 10 years ago in the Lambert Review.

Engagement with businesses

128. We received suggestions on how universities could be encouraged or incentivised to engage more closely with business requirements.

129. The Electronics Technology Network stated that their members felt that services tendered through universities were too expensive and that universities needed to have incentives to engage with their local businesses:

Future funding for Universities should be based upon their past record of commercialisation. Incentives should be given to Universities to adapt research to reflect the skills and interests of their local business community, thereby strengthening the region's cluster.[191]

130. The University of Plymouth supported the establishment of fellowships for universities to engage in research, embedded within industrial partners.[192] Bournemouth University suggested the creation of "a list of 'industry/university brokers' who could assist linking industry to universities and assessing the relevance of university research to an industry".[193]

PUBLIC SECTOR RESEARCH ESTABLISHMENTS

131. Universities are not the only publicly funded research organisations. There are also the Public Sector Research Establishments, The Department for Business, Innovation and Skills explained:

Public Sector Research Establishments (PSREs) are a diverse collection of public bodies carrying out research. This research supports a wide range of Government objectives, including informing Government policy making, statutory and regulatory functions and providing a national strategic resource in key areas of scientific research. Many of these bodies are involved in commercialising research.[194]

132. The Association of Independent Research and Technology Organisations (AIRTO) told us that these laboratories cannot access the funds available to universities to replace the loss of Regional Development Agency funds towards commercialisation activity. AIRTO suggested that funds from the Research Councils should be extended to PSREs and even to commercial organisations to make that funding more effective.[195] This stance was supported by Midven, a venture capital fund manager. AIRTO also pointed out that the structure of funding from the TSB means that PSREs may find they cannot participate in TSB related innovation activity without losing money.[196]

133. The National Physical Laboratory (NPL) pointed out that while the Government's recently published Innovation and Research Strategy for Growth[197] "recognises the importance of PSREs like NPL for translational research, it does not include any recommendations to enhance their role".[198] NPL explained the benefits that they provide to small businesses seeking to innovate technologically:

Public Sector Research Establishments (PSREs) like NPL maintain significant scientific and technological capability to fulfil their core government function, in the case of NPL to provide the UK national measurement system infrastructure. NPL makes spare capacity on this capability available to business and government customers through R&D services at commercial rates. NPL often receives inquiries from SMEs with a need to de-risk a technology through the application of our specialist facilities and knowledge which they cannot afford to access, putting the commercialisation of their research at risk.[199]

In paragraphs 47-53, we addressed the lack of access to test facilities and the fragmented approach to capital equipment. Engineering the Future stated:

Among the developed European nations, the UK is unusual in that it has not historically supported 'intermediate institutes' of any significance and certainly not on the scale of the Fraunhofer Institutes (Germany), TNO (Netherlands) or VTT (Finland). Instead, the UK placed greater emphasis on university research with mixed results for the nation's innovation performance. The creation of the TSB Catapult centres, following the announcement of a £200m innovation programme in 2010, was a welcome development. The TSB could also coordinate a strategic programme to support and strengthen the supply networks.[200]

134. The Council for Science and Technology (CST) in its report "A Vision for UK Research" recommended that the Government consider the establishment of Large Technology Platforms:

New technologies often need to be further developed by substantial teams for a number of years before they are commercial. These teams need to be larger than the research teams which first made the discovery. They often need expensive production equipment to make the research industrially useful. This requires a dedicated environment with a clear focus for a period of 5 to 10 years.

[...]

To make a difference in a global context we suspect that each of these platform technologies will need between £50 to £100m over a 5 to 10 year period to become the basis of numerous start-ups and licensed projects to large companies. This will lead to clusters of expertise in these sectors that feed off each other in a virtuous circle enabling the UK to retain global leadership in large markets.[201]

The CST recommended that funding should come from various public sources (TSB, EPSRC, European Framework Programme, RDAs, Universities etc) but should have a substantial industrial component that would require some incentive from Government.

135. Public Sector Research Establishments were identified in Lord Sainsbury's "Race to the Top" review of government's science and innovation[202] as key players in innovation and commercialisation activity. However, the review made no reference to the role PSREs might play in hosting technology that could be made available to commercial exploitation.

136. It is crucial that the Government has a coherent plan on how to engage the research base (people, facilities and intellectual property) with the innovation agenda. However, the current situation is fragmented and confusing and, as such, extremely difficult for small businesses to engage with.

137. We ask the Government to provide, in their response to this report, its perspective on the adequacy of the national infrastructure for innovation, benchmarked against nations with which we compete and how it intends to remedy structural short-comings, possibly along the lines recently recommended by the Council for Science and Technology. We recommend that Public Sector Research Establishments play a key role in this infrastructure and we plan, in future, to examine their role within the research and innovation ecosystem in more detail.

134 For example Q 24, Q 111, Q 241 Back

135 Ev w101, para 4 Back

136 Ev 101, para 41 Back

137 http://www.innovateuk.org/aboutus.ashx Back

138 Q 130 Back

139 Ev 183, para 1.6 Back

140 Q 241 [Iain Gray] Back

141 Q 241 [Sir John Savill] Back

142 For example Ev w154, para 14 Back

143 SMART awards are operated by the TSB to provide support for proof of concept and proof of market activities within businesses and universities. Companies can also seek support for the development of prototypes through this programme. Back

144 The SBRI is operated by the TSB to enable technology-based SMEs to compete for contracts developing innovative solutions to public sector challenges, and has helped to support the commercialisation of new technologies in sectors such as healthcare, defence and electronics. Back

145 Ev 119, para 6.1 Back