Science and TechnologyWritten evidence submitted by LGC Limited

1. Summary

1.1 Technical innovation is critical to the success of companies operating in the dynamic field of chemical and biological analytical services, and LGC has direct experience of the challenges of delivering commercial value from scientific R&D. In its contracted roles as a supplier of key scientific services to government that support research commercialisation in the UK, LGC also brings the perspective of an innovation support agency to this debate.

1.2 Our perception is that there is a gap in UK government funding and support for innovators striving to commercialise so-called “disruptive technologies”, which require significant investment (and usually a transition in working practices) to secure commercial success. This gap in funding can be surmounted by a degree of de-risking that will encourage partnership with private equity, venture capitalists and larger companies that have strong financial backing and an established market, and are in a better position to deliver commercial success from innovation activities. De-risking can take multiple forms including providing support from (and access to) organisations that can help in robust technology evaluation, business planning and prototyping, developing appropriate infrastructure (eg standards, regulation and procurement frameworks) and establishing funding/tax structures to incentivise investment.

2. About LGC

2.1 LGC was founded in 1842 as the Laboratory of the Government Chemist. It spent its final public sector years as an Arms Length Body laboratory within the Department for Trade and Industry, prior to privatisation in 1996. LGC has since been through three rounds of venture capital funding, and is currently majority owned by a private equity investment company, Bridgepoint Capital. Since privatisation, LGC has extended its scientific reputation through substantial internal investment, grown revenue by 800% and created many hundreds of new jobs for the UK. LGC is now one of the leading private science facilities in the country, employing over 1,600 highly-skilled people undertaking chemical and biological analytical services for industry and governments on an international scale, with operations in Europe, Asia, Africa and America.

3. Experience in commercialising research

3.1 LGC supplies scientific, regulatory and programme management services on behalf of a number of government departments, and is the designated National Measurement Institute (NMI) for chemical and bioanalytical measurement. As the Government Chemist, LGC also has a statutory role in providing UK policy advice regarding chemical measurement. These government funded LGC activities are at the interface between R&D and commercialisation, and bridge the gap between academic research activities and commercial implementation.

3.2 A major customer for LGC’s programme management services is the Department of Health (DH). LGC manages the National Institute for Health Research (NIHR) Central Commissioning Facility and the Policy Research Programme (PRP) on behalf of DH, and as such is responsible for coordinating the distribution of £300 million of research funds per annum, including two funding schemes (the NIHR Innovation for Invention programme and the joint DH/Wellcome Trust Health Innovation Challenge Fund) targeted at translating research into commercial application. LGC also has an important role in monitoring these funded programmes to ensure funds are being spent wisely.

3.3 As a leading supplier of specialised chemical and bio-analytical services to government and industry customers, technical innovation is critical to LGC’s competitiveness. Our company invests over 3% of turnover in research and development to enhance customer service, and £8 million was spent in FY 2010–11 in capital investment. We are also active participants in collaborative research programmes funded by the Technology Strategy Board and are members of various Knowledge Transfer Networks.

3.4 Our German laboratories have also benefited from German state funding for scientific businesses. Two of our laboratories in the vicinity of Berlin benefited directly from local government support to help establish state-of-the-art laboratory facilities. We also have some experience in participating in EU Framework funded projects.

3.5 Because of our position as a supplier to government of key scientific support services that support research commercialisation in the UK, as well as our own experience in bringing innovative products and services to market, we are in a strong position to advise government on the subject of this Call for Evidence. LGC is focused on sharing learning across our disciplines and with our government partners and we see this Call for Evidence as an opportunity to do this.

4. The difficulties of funding the commercialisation of research

4.1 In discussing commercialisation of research, distinctions need to be made across a scale of innovation activities from “easy” to “difficult”. The “easy” cases result from developmental or iterative changes, with lower risk and shorter timeframes for payback. “Difficult” cases require significant time and money investment for successful commercialisation, and usually involve development of new markets and supply-chain infrastructure. LGC has experience at both ends of the spectrum.

4.2 We have numerous examples of successful technology transfer at the “easier” end of the scale, where new technical solutions have been successfully adopted in commercial LGC services for customers, or deployed in new products for sale. Much recent effort has been directed to developing methods and tools for various DNA analysis applications, which can be directly commercialised through LGC’s established Forensics and Genomics businesses.

4.3 Other elements of LGC’s strategic R&D portfolio have been rather less easy to commercialise, with projects generally involving the development of so-called “disruptive technologies”. The commercialisation of the outcomes of these projects, assuming the projects do not fail on technical grounds, requires a significant investment (or transition in working practices) by third party customers as well as LGC to secure commercial success. The availability of TSB funding for collaborative research has been valuable in such cases in order to develop technological solutions that are most relevant to the customer base. However, there are still significant further hurdles involved in getting a disruptive technical solution converted into a successful commercial product.

4.4 One significant investment LGC has made in recent years is in the commercialisation of a highly innovative technology termed dna™, which is based on LGC’s proprietary HybeaconsTM technology for Rapid DNA analysis. This investment is entirely self-funded and would not have been feasible without the support of our private equity owners Bridgepoint Capital. The technology takes the form of a portable device, which supports the use of DNA as an intelligence tool. Importantly, dna™, complements conventional evidential DNA tests, but will provide police forces the capability to include or exclude suspects from an investigation very quickly. A dedicated delivery team has been established to produce and market dna™ technology for the police forces, but despite the years of investment and extensive market testing there is still a distinct commercial risk due to the disruptive nature of the technology. Successful adoption of this product will require training of the customer base, implementation of new data handling solutions (eg linking data with the UK DNA database), and significant revision in the approach to forensic regulation, standards, and working practices by police forces.

4.5 Key learning points from LGC’s experience in commercialisation and in working with Universities and Small-to-Medium Enterprises (SMEs) are:

SMEs and larger companies are best placed to take smaller scale innovations to market. Knowledge of innovations within the research base is important to ensure investments in the science base are effectively translated in to industry value, Technology partnerships and knowledge transfer networks can facilitate this, and do so with varying effectiveness.

Government funded collaborative projects are valuable instruments for the initial development of a marketable technology or service, but only near market innovations can be developed from idea through to full commercial exploitation during the normal funded one to three year period.

Significant further self-financed investment is required to transfer disruptive technology into a commercial product or service.

50% funding over a one to three year timeframe is not usually sufficient for start-up enterprises to demonstrate progress with disruptive technologies, or to de-risk innovations sufficiently to attract large funding from industry or venture capital.

SMEs and universities need access to a support infrastructure that enables them to more easily assess the value of their technology and to ensure that resources are best utilised to progress in a way that is more likely to attract follow-on investment.

4.6 Our experience suggests that larger companies like LGC that have strong financial backing and an established market are in a better position than smaller companies or academic groups to deliver commercial success from innovation activities. It may therefore be appropriate for government to consider mechanisms to further promote “open innovation” models, whereby the inventiveness of small companies and academia can be harnessed and capitalised on in partnership with larger industrial end users.

5. Sectors where it is difficult to commercialise research

5.1 LGC has considerable experience in delivering innovation in the field of measurement science for the areas of Health and Criminal Justice (forensics). Both these sectors are notoriously cautious in adopting new technology due to tight regulations and high cost of failure. The lack of standards, regulation and the requirement for national infrastructure can all be barriers to commercialisation. The UK could do better in supporting innovative new markets by better coordination of the supporting infrastructure and facilitating investment through, for example, tax benefits and Government procurement.

5.2 Through our innovation support activities, we have also observed the significant challenges faced by innovative biotechnology companies in bringing new products to market. Only a small percentage of biotech companies fail for technical reasons before the start of product development. Of those that fail at this stage, some have been founded, and investments made, on results which subsequently could not be repeated or developed. By contrast, failure in early stages of product development is common. This rarely leads to complete company failure, but it can do so, and it does lead to the need for substantial re-work and consequent added cost. Up to 20% of the biotech company’s total investment can be spent on such re-work. Some 50% of biotechnological companies are believed to be delayed or incur extra cost due to such problems.

5.3 One biotech company we are familiar with was founded by a group of experts from a leading UK institution to develop gene therapy applications from the founder’s research. Substantial investment was received for a portfolio of programmes, including one that went rapidly to human clinical trial. Much of the early work was high quality and was published in peer review journals. However, the assay processes were not suitable for regulatory requirements and the therapeutic was hard to manufacture.

5.4 The therapeutic manufacturing protocols and monitoring methods were changed during the pre-clinical development phase. This meant that the therapeutic construct was different to the original one. The company needed to demonstrate equivalence. No Standard Operating Procedures had been written and no samples retained. The cost associated with correcting this position was around £2 million or 10% of funds invested in the company.

5.5 LGC is currently contributing to a TSB-funded project aimed at understanding the barriers to commercialisation for cell-based regenerative medicine products and developing a tool-kit (including predictive modelling tools for market analysis and optimisation of manufacturing processes) for companies seeking to commercialise new products in this area.

6. Common difficulties across sectors

6.1 Common challenges arise for research commercialisation across sectors. Commercial success requires:

Knowledge of market needs within the science base.

Proof of concept (including independent assessment and verification).

Maturity of market for the innovation (and readiness for change).

Availability of supply chain/infrastructure to serve the innovation.

Business planning.

Robust quality management processes throughout the product development phase.

Availability of investment (and associated due diligence).

Skills for marketing and commercial delivery.

Supportive regulation.

Government support mechanisms should strive to address these areas.

7. Research commercialisation outside of the UK

7.1 We are aware of a few examples where innovations have been successfully commercialised abroad, and not in the UK, indicating that some non-UK markets may be more receptive to adopting new technological solutions than our own. This is clearly a threat to UK innovators, but it should also be acknowledged that a significant proportion of UK wealth is created by multinational organisations that are in a position to seek out receptive international markets for new products. It is most important to ensure that these multi-national companies invest in R&D in the UK rather than overseas, and to do this we need to maintain our universities at the leading edge and make it easy for companies to access IP and skills. Otherwise they will move R&D centres overseas, and this would be particularly harmful to our economy.

8. Evidence that Government and TSB initiatives have improved the commercialisation of research

8.1 LGC is an enthusiastic proponent of TSB-funded Knowledge Transfer Networks, and has participated in TSB-funded collaborative research projects for the development of commercially relevant technology. Our most successful TSB-funded projects have tended to be relatively small (three to four partners) business-to-business projects, where there was a real focus on delivering a commercially viable product to address a particular industrial need.

8.2 One recent example has been a collaborative project led by LGC for the development of technology for in-clinic rapid detection of Chlamydia and other Sexually Transmitted Infections (STIs). This innovation will enable results to be processed whilst patients wait, rather than having to send samples off to a remote laboratory for processing, and this time saving is expected to have a significant beneficial effect on the ultimate eradication of these STIs. Such part-funded TSB projects are very useful for understanding market needs and tailoring technical solutions in line with these. However, subsequent commercialisation steps can be slow and require significant further investment. This investment can become a significant barrier.

9. LGC’s view on the government’s innovation, research and growth strategies and their expected impact on the commercialisation of research

9.1 It was very encouraging to see government spending for scientific research and collaboration protected in the recently published government strategy. The current adverse economic climate is certainly a challenge for those seeking to commercialise research, so government support at this time is particularly important. The proposed mechanisms and infrastructure (eg catapult centres) to promote collaboration and financially support early stage innovation enterprises are also very timely.

9.2 One element that was less well articulated and possibly represents a gap in the current strategy is the role of established larger private companies in helping with the commercialisation of research. The ability of larger companies to effectively commercialise research could be leveraged further with appropriate government support. The international dimension to UK innovation was a particular area that received substantial and overdue attention in the Innovation and Research Strategy for Growth. Larger companies with an established international presence are in a particularly strong position to raise the profile of UK science and innovation and leverage its value overseas.

10. The role of private equity investment in science and engineering sectors and how government can encourage it

10.1 As an example of a successful private equity-backed science organisation, LGC’s privatisation experience may be of relevance to help understand the value private equity investment can bring to science enterprises.

10.2 We think that the gap in the currently available government support mechanisms for R&D commercialisation could be resolved in some part by having a well financed “middle sector”, comprising organisations like our own operating in the technology transfer and innovation market. These organisations are in a good position to provide experience and support in business planning, technical evaluation, standardisation and quality assurance, market intelligence and access routes. The partnership of such organisations with the scientific innovators would provide:

(a)Improved support for proof of concept—financing, access to expertise and technologies, independent assessment and verification.

(b)Reduced hurdles to VC support—market creation, technology evaluation support (help to identify winners and losers quicker), business support (plans, financing options, improved tax incentives etc).

Government support and funding to promote such partnerships could therefore be beneficial.

11. Other Government support options to consider for future funding

11.1 There is a perceived gap in government funding options for organisations once a new technology has been developed, and a new product or service is ready for commercialisation. Self-investment is usually required for the next steps of business development and this can often be a challenge where an organisation lacks access to capital and experience. To lessen this burden, it may be useful for government to direct funds towards:

Market analysis support to understand market needs.

Flexible regulation that can be tailored to accommodate new research outcomes.

Infrastructure to support new technology adoption (establishing the supply chain).

Addressing the risk-averse culture in certain markets eg helping customers to manage the risks of new technology adoption, reducing regulatory constraints.

Training in relevant skills for entrepreneurs and investment community.

Support with finding, establishing and funding commercialisation partnerships with larger companies and investors.

February 2012

Prepared 11th March 2013