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

4  Government as a lead customer

138.  Until now we have been looking at money the Government spends as a patron of research spending. However, that is very small compared to the amounts that the Government spends every year in purchasing goods and services from businesses. The Royal Society of Chemistry stated that "In 2010-2011 the UK's public sector spent approximately £236 billion on goods and services, which is significantly higher than the annual investment in all aspects of research and innovation of £11 billion".[203] This chapter looks at the role of Government as a customer of innovative companies and in the direct development of such companies. Procurement is important. The small companies we spoke to told us that customers were more important than grants.[204]

139.  Matthew Bullock, previously head of technology at Barclays and recent holder of the Chair of the Centre for Business Research and the UK Innovation Research Centre, told us about the need for the Government to leverage its spending:

My experience is getting people to the base where they have got a business, got the experience and know their markets, which is very important. In this country's approach, as Government, you are the biggest customer in Government; you have the most technical demands; you have an enormous range of things that you would like to see developed. We absolutely do not use it as an engine of growth; it is absolutely absurd.[205]

140.  Sir Peter Williams, Treasurer of the Royal Society and Chair of the National Physical Laboratory, stressed the advantages of Government procurement:

There is no doubt whatsoever that schemes like Merlin have been well intended to push capital down to businesses. If intelligent procurement and Government contracts pushed real orders resulting in real revenues and real cash flows into emerging businesses, that is the one thing that would persuade investors to buy their shares and back those companies. So procurement has a double whammy: it helps the company directly, and it conditions the market perception of this whole sector.[206]

This was further developed by Dr Tim Bradshaw of the CBI:

If you look at it from the pull side—the Government procurement side—yes, absolutely, that is what can really make a difference. Despite what I have just said about grants, aid and things, most companies would bite your arm off for a contract rather than a grant. The more the Government can do to encourage innovation through their procurement lines the better, be it through SBRI or maybe making sure that all the public procurement space is also looking at innovation so that we transform it. We look at things like outcome-based procurement and whole-life value; we encourage those involved in procurement to look for innovative new ideas that might save them money long term, rather than short-term upfront costs.[207]

141.  Fergus Harradence, Deputy Director, Innovation Policy, Department for Business, Innovation and Skills outlined the major challenges to a better system of procurement:

The first is to simplify and streamline the procurement process and free up more time within procurement functions to enable them to go out and engage with the marketplace and businesses in a strategic way, combined with better signalling of Government demand in particular areas. The work that has been done on future capability needs in areas like tunnelling would be an example of that. We published quite a lot of information earlier this year about future Government needs.

Secondly, there is a big challenge in upgrading the skills and knowledge of people in the procurement profession. The difficulty in doing that is that procurement is not in most public sector organisations a centralised function; [...] The culture, structures and the way procurement is managed in the UK are fundamentally different, and that makes it hard for us to procure in the same strategic way that you see the US doing. I would not say that these problems are insuperable; they could all be tackled over time, but, being realistic about it, it will be a process of long-term improvement and cultural change.

Training disparate groups of staff to achieve a common understanding is not a new concern, especially not in the arena of innovation and commercialisation of research. Praxis originated in 2002 from a government-backed collaboration between Cambridge and the MIT to address the shortage of skilled knowledge and technology transfer personnel. Praxis merged with Unico (the representative body of professionals that worked to commercialise UK university and public sector research) in October 2009 to form PraxisUnico "an educational not-for-profit organisation set up to support innovation and commercialisation of public sector and charity research for social and economic impact".[208]

142.  PraxisUnico provides training programmes and networking events to improve technology transfer skills across the whole of the university sector. It is a good example of a government sponsored programme that delivered necessary skills across a disparate sector. We recommend that the Government should consider it as a model for the delivery of a coherent set of skills across the whole of Government procurement.

143.  Sir David Cooksey, Chair of the Francis Crick Institute, pointed to a fundamental problem for SMEs seeking to gain Government contracts:

The situation on procurement is that, if you look at the requirements Government place on their Departments for making procurement, the qualifications required in terms of the financial size and stability of the companies are such that they positively exclude the sort of companies we are talking about from supplying Government, and that is completely wrong. What we should be looking at is Government being prepared to pay for the prototypes from these companies to get them off the ground and make them work.[209]

Small Business Research Initiative

144.  SBRI is the Government's key policy to support the establishment of innovative companies and provide a gateway for small technology firms to gain government contracts procuring goods and services. The Government told us that it understood the principle of procurement as a tool to drive innovation:

Innovation procurement initiatives reduce risk, guarantee sales, encourage market entry, provide early testing ground and manufacturing experience, create demand and make latent demand manifest, and diffuse technology.[210]

145.  Dr David Connell recommended a huge increase in SBRI funding:

i.  Increasing the UK SBRI programme in steps from around £20m per annum currently to £250m per annum. [...]

ii.  Adding an equivalent sized budget for larger scale demonstration projects (above the £1m SBIR Phase 2 ceiling)

iii.  Establishing a similar programme to encourage more private sector organisations to act as lead customers for new technologies developed by SMEs. [...]After piloting this programme, the aim should be to increase funding projects to £100m a year.[211]

146.  We welcome the Government's ambition to grow SBRI:

Since 2009, when we relaunched the programme, we have been able to build it to a level of about £20 million a year of expenditure, [...] In an ideal world, I would like to see it more than double, and we should be aiming to grow this to a level of about £50 million a year, which I think is feasible and achievable in a relatively short space of time.[212]

147.  However, improving the funding of SBRI will only be fully exploited if that investment is not followed up by intelligent government procurement providing commercial opportunities for the companies involved. Mr Harradence, BIS, stated:

We have been doing some work on better supply chain management and how Government can engage more effectively to support the development of new products and services over the longer term through our Forward Commitment Procurement programme. We have used that to procure zero-waste mattresses for the Prison Service, which are more environmentally friendly and cost less, and to develop a new type of ward environment, this time for the National Health Service. We have got to the point where it has been demonstrated. It is in the Building Research Establishment in Watford.[213]

148.  While we were pleased to hear of successes, Iain Gray, CEO of the TSB highlighted how companies that the TSB has nurtured through to commercialisation often fail to achieve sales to the Government. For example,

Eykona won an SBRI contract. It has taken it to the next stage. The managing director of Eykona would say, "We would not exist as a company were it not for SBRI", but he has now reached the critical point John describes, which is: how does he move that on now into a procurement-type contract in the NHS? Ironically, the market he is now chasing to procure the technology that has been developed under an SBRI contract is overseas. He is chasing overseas contracts because, when it comes to the critical point of the next stage in the procurement contract, there is a risk-averse approach in the UK.

We have got great science and technology; we have got the SBRI in place, which is helping small businesses get their technology to the point where they can take it to market; and we need that pull at the next stage to act from a procurement point of view to move the technology into the NHS.[214]

149.  Midven, a for-profit venture capital manager, thought that the SBRI was still managed like a government grant scheme which might be one reason it did not function as a intended as "a route to early, sustainable sales for SMEs".[215] The Academy of Medical Sciences argued that the scheme needed to be properly embedded itself across all government departments "particularly the larger spending departments such as the Ministry of Defence".[216] The University of Birmingham pointed out that in the USA government departments were required to spend a defined percentage of their budget supporting small businesses.[217] In contrast, the Science Policy Research Unit unconvinced of the evidence in support of the SBRI scheme, highlighting the lack of clarity on the costs of the scheme[218] and Engineering the Future suggested that time should be taken to properly evaluate it.[219]

150.  We were concerned that the SBRI scheme fails to assist companies to gain Government commercial contracts. We recommend that the Government ensure that its procurement officers, and those of other public sector agencies, are properly trained to take into consideration the wider public benefits of procuring services from small technology companies that have been developed through the SBRI.

National Health Service

151.  We were interested to discover what advantage the existence of National Health Service would deliver in enabling innovation in health technologies. Andy Richards gave us an investor's perspective:

This is not just a statement about drug discovery; it is a much broader comment. [...] 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.[220]

152.  Novartis stated:

The key point here is that pharmaceutical R&D investment in the UK is, to some extent, dependent on the willingness of the NHS to support and adopt the innovations that are developed as a result of R&D activity. Without adequate uptake, medicines commercialisation will decline.[221]

153.  The Association for Medical Charities was concerned that the NHS did not provide any market certainty for innovative drugs:

To attract investment into commercialisation of research there needs to be an end market. Our members have expressed frustration with the products of their research both failing to receive NICE approval or receiving NICE approval and subsequently not being adopted throughout the NHS. Strict commissioning guidelines are needed to ensure approved innovations are rapidly taken up across the NHS.[222]

154.  ISIS Innovation, the technology transfer office for the University of Oxford, confirmed this view:

In Healthcare there is an urgent need for the NHS to present itself as a willing customer of innovative products from UK technology companies. The NHS needs to become a first port of call. At present UK healthcare technology companies actively avoid engaging with the NHS because it is such a poor customer (slow decision making, late adoption), turning instead to overseas markets.[223]

155.  Dr Bianco, Director of Technology Transfer at the Wellcome Trust, explained that a fundamental problem in driving innovation in the NHS would appear to be that people that took risks in innovating rarely experienced any financial benefit.

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. [...] Adoption has become a problem because the reward system is not necessarily linked.[224]

156.  Research hospitals should be the innovation pioneers within the NHS, a source of data and expertise but Dr Goodier of the Shelford Group indicated that they were poor partners for the biopharma industry and technology:

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.[225]

157.  Despite these difficulties, witnesses believed that the NHS represented considerable potential as an encourager for future innovation, especially in the area of stratified (or personalised) medicine. Dr Tapolczay, Chief Executive of Medical Research Council Technology, stated:

[] 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.[226]

Dr Richards, entrepreneur and business angel investor, stated

[] 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.[227]

158.  We recently inquired into the UKCMRI, later renamed the Francis Crick Institute.[228] This facility has the potential to be the flagship of innovation in the UK healthcare system and to doctors trained in deploying innovation and new technology throughout the NHS.

159.  We recommend the Government examine the critical role of research hospitals in addressing the most challenging of conditions and explore ways of ensuring that funding encourages the development of innovative solutions.

160.  We consider it critical for the future of the bioscience sector in the UK that the Government ensures that a significant proportion of the NHS procurement budget is accessible by small innovative companies. The Government should incentivise NHS Trusts to engage with SME companies for innovative technology solutions. A similar approach should also be adopted across other agencies including local government, police etc.

Support for sectors of industry

161.  The UK has traditionally had a strong presence in the life sciences, confirmed by the attention the Government pays to this sector. The Strategy for UK Life Sciences announced it would provide £180 million targeted at the 'valley of death' to 'de-risk' investment in life science innovation, half of which will be funnelled through the TSB to support SMEs.[229]

162.  There are a number of policy instruments focussed on the life sciences sector:

Strategy for UK Life Sciences[230] contained recommendations to improve the uptake on innovations within the NHS, Innovation, Health and Wealth: Accelerating adoption and diffusion in the NHS[231] and outlined further steps to support the commercialisation of health research in the UK.

Biomedical catalyst scheme[232] to support the development of promising early-stage drugs into new treatments by universities and small or medium enterprises (SMEs).

Early Access Scheme consultation[233] to identify where new treatments could potentially be given conditional authorisation, have their assessment accelerated or be licensed early to speed commercialisation.

The strategy announced the establishment of a new Life Sciences Advisory Board comprising of representatives from industry, academia, government departments and agencies and the appointment of an MP to advise David Willetts on life sciences.

Steps have been announced to develop a safe and secure system which opens up patient data for research[234] and ensures patients are offered opportunities to be involved in research relevant to them are valuable.

Plan for Growth,[235] though not life science focussed, heralded work to streamline the regulation of health research and establish a Health Research Authority.

163.  The Association for Medical Charities, like other organisations related to the life sciences,[236] welcomed government initiatives in the life sciences but considered that some additional detail was still needed.[237] The framework of policies provide a big picture within which the life sciences industry can see where they might fit in the future and inform their investment.[238] The Government has developed policies to enable the sector to carry out its activities and, in partnership with charity and industry, has invested in infrastructure in the Francis Crick Institute[239] and Stevenage Open Innovation campus.[240]

164.  However, Professors Anthony G M Barrett and R Charles Coombes of Imperial College, London, outlined concerns about a challenge in the bio-pharmaceutical sector where the big companies were leaving the field of drug discovery and universities were not able to fill the resulting research gap:

Globally drug discovery is rapidly changing. The big pharma companies such as Pfizer, GlaxoSmithKline, AstraZeneca and others are leaving drug discovery rapidly and their exit will be complete in the next 5 to 10 years, perhaps sooner. The recent closure of Pfizer Sandwich and downsizing of AstraZeneca are not unusual events but are part of the inevitable global process. The trillion-dollar question is whatever next and where will the medicines of the future come from? Will pharmaceutical innovation be totally lost to the UK and the UK pharmaceutical industry, worth many billions to the UK economy, become another smokestack memorial.[241]

165.  Dr Ian Tomlinson further explained that early drug discovery was not an area in which large biotechnology firms were able to effectively operate:

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. [...] 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.[242]

166.  Both the Crick institute and the Stevenage Open Innovation campus demonstrate that the Government is working actively with the industry to ensure that bioscience retains a strong presence in UK research and development. Government support for life sciences has been excellent and there is real innovation taking place in how that sector might be supported.

167.  Despite these successes, we heard that there was some disappointment that the particular requirements of the agriculture related sectors were not included in the strategy.[243] The Agricultural Biotechnology Council told us:

Research from the Rothamsted Institute found that the UK is losing its expertise in applied sciences, with those employed in applied R&D work increasingly getting older and fewer in number. There have been three significant closures of public research institutes associated with agriculture in the past decade. The closures of Long Ashton Research Station in 2003, Silsoe Research Institute in 2006 and the Hannah Research Institute in 2007, have all contributed to a decline in our public agricultural research base.[244]

168.  PraxisUnico considered that the "commitment shown to the bioscience sector needs to diversified into engineering and the physical sciences if the UK is to reshape its industrial base".[245]

169.  Another sector of government procurement that would appear open to active encouragement for innovation is that of Defence, the UK Innovation Research Centre and the Centre for Business Research stated that the USA effectively utilises its military budget to drive innovation.[246] The Rt hon David Willetts MP told us how the Ministry of Defence was using procurement to drive innovation. Fergus Harradence of the Department for Business, Innovation and Skills pointed out that the Ministry of Defence was a keen contributor to the SBRI scheme. However the Ministry would appear to be outsourcing its procurement which may limit its potential to utilise the budget in this fashion. In a statement in July 2012 the Defence Minister, Philip Hammond MP, said:

Earlier this year, I therefore asked my officials to focus their efforts on considering the comparative benefits which could be derived from changing DE&S into either an executive non-departmental public body with a strategic partner from the private sector (ENDPB/SP), or a Government-owned, contractor-operated (GOCO) entity. The work done to date, suggests that the strategic case for the GOCO option is stronger than the ENDPB option. Further value-for-money work is under way to confirm this assessment.[247]

170.  Evidence sent by the UK Innovation Research Centre and the Centre for Business Research pointed out that other governments were active supporters of innovation in their own industries:

Many governments outside the UK support technology through specific R&D programs aimed at pre-commercial support in technology and market development around a group of applications. These provide R&D support and subsidies for specific technological areas; access to specialized equipment; forums for the establishment of standards; direct financial support for establishing new industries; public procurement by military and health departments especially of R&D services; acting as deep-pocketed first customers and procuring first quantities of technologies.[248]

171.  Professor Nick Wright, of the Russell Group of universities, was particularly scathing about the way various UK governments had approached the commercialisation of research:

We seem to be the only major economy that thinks we can make this work on fairy dust and good intentions. [...] It does not have to be heavily prescribed; it can be an informal system, but [most large economies have] a national innovation system of some kind, and we desperately need that in the UK.[249]

172.  We have not been persuaded that the Department for Business, Innovation and Skills has a strong enough voice across Government policy to effect the necessary radical change in procurement practices. Procurement by Government departments needs to focus on issues other than simply cost. We recommend a Minister in HM Treasury be given responsibility for the delivery of procurement-driven benefits identified by the Department for Business, Innovation and Skills.

173.  Dr Tim Bradshaw, Confederation of British Industry, explained the demonstration effect of British companies gaining Government contracts:

The more the Government can do to encourage innovation through their procurement lines the better, be it through SBRI or maybe making sure that all the public procurement space is also looking at innovation so that we transform it. [...]When you have some really good things in the public estate, showcase them. If you have got them in, show them off to the rest of the world and show what can be done. Make sure you are demonstrating to overseas buyers that we have done this in the UK[250]

The Minister indicated that the Government was aware of the need to ensure better information of public spending needs among businesses[251] but was not convinced that more action needed to be taken to ensure broader benefits to UK industry through public procurement:

We have to be very careful of protectionism.

As I say, that is why our approach has been information in advance and sharing our future plans. [...] In the long run British businesses need the competitive challenge of winning in a competitive environment.[252]

174.  We recommend that the Government, in two years, publish a breakdown of companies successful in tendering for Government contracts and compare whether greater openness in procurement has resulted in increased contracts among small and developing British technology companies.

203   Ev w82, para 24 Back

204   For example, Q 79 Back

205   Q 62 [Matthew Bullock] Back

206   Q 101 [Sir Peter Williams] Back

207   Q 223  Back

208   PraxisUnico website,, December 2012 Back

209   Q 101 [Sir David Cooksey] Back

210   Ev 104, para 79 Back

211   Ev 119, para 6.1 Back

212   Q 245 Back

213   Q 245 Back

214   Q 249 Back

215   Valley 46, para 7 Back

216   Valley 67, para 17 Back

217   Valley 30, para 5.3 Back

218   Valley 54, para 27 Back

219   Valley 79, para 4.2 Back

220   Q 37 [Dr Richards] Back

221   Valley 83, para 10 Back

222   Valley86 , para 21 Back

223   Valley 28, para 5 Back

224   Q 38 [Dr Bianco] Back

225   Q 38 [Dr Goodier] Back

226   Q 38 [Dr Tapolczay] Back

227   Q 38 [Dr Tapolczay] Back

228   Science and Technology Committee, 6th Report - UK Centre for Medical Research and Innovation (UKCMRI),HC 727, 25 May 2011 Back

229   Valley 00, para 40 Back

230   Department for Business, Innovation and Skills, "Strategy for UK Life Sciences", December 2011 

231   Department for Health, "Innovation Health and Wealth: accelerating adoption and diffusion in the NHS", December 2011 Back

232 Back

233   MHRA, "Proposal to introduce an early access to medicines scheme in the UK", July 2012 

234   Department of Health, "Information: To Share or not to Share", May 2012 

235   Department for Business, Innovation and Skills & HM Treasury, "The Plan for Growth", March 2011 

236   For example, Ev w63, Ev w68 and Ev 132 Back

237   Ev w191, paras 30-36 Back

238   Ev w147, para 2 Back

239 Back

240 Back

241   Ev w194, para 2.1.2 Back

242   Q 35 [Dr Tomlinson] Back

243   Ev w66, para 17 Back

244   Ev w148, para 7.3.5 Back

245   Ev 147, para 2 Back

246   Ev w43, para 5.1 Back

247   HC Deb, 17 July 2012, c124WS Back

248   Ev w43, para 6.1 Back

249   Q 145 [Professor Wright] Back

250   Q 223 [Dr Bradshaw] Back

251   Q 291 Back

252   Q 293 Back

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© Parliamentary copyright 2013
Prepared 13 March 2013