Science and TechnologyWritten evidence submitted by University College London UCL

0. Introduction

0.1 UCL is a world-leading research-intensive university with a turnover of ca £800 million of which approximately £400 million is attributable to research. The university employs over 4,000 active researchers covering a wide range of disciplines from Biomedicine through to Arts and Humanities. The results of UCL’s research are principally disseminated through publications in learned journals, conferences, and the media. UCL is engaged with industry and undertakes collaborative research and contract research, and has a strong record in Knowledge Transfer Partnerships. These activities also act to disseminate the outcomes from its research.

0.2 UCL has a strong track record in the commercialisation of its research and is committed to extending and enhancing its ability to do so. Commercialisation of research can often provide the most effective method for ensuring maximal societal benefit from the research activity and is therefore an important but not sole element of the impact agenda. UCL has an integrated approach to maximising economic and societal benefit from academic activities as described in the UCL Enterprise strategy.1

0.3 UCL has created a wholly owned subsidiary UCL Business Plc (UCLB) to facilitate the process of protection and commercialisation of Intellectual Property (IP) and to act as its Technology Transfer Office (TTO). UCLB uses the full range of approaches to ensure effective commercialisation including licensing, creation of spin-out companies and project development. Further information on the activities of UCLB is available in our Declaration of Interests (paras 8.1–8.3). The responses below have been collated from a number of individuals involved in the process of commercialisation and reflect our experiences at UCL.

1. What are the difficulties of funding the commercialisation of research, and how can they be overcome?

1.1 It is important that a realistic value is placed on IP to reflect the development costs in getting to market. Appropriate steps should be taken by universities to maintain the possible commercial value of IP in order that funds can be raised to cover development cost, especially when developing open access and Easy Access IP policies.

1.2 By international comparison the investment by UK industry into research of UK universities is low and this is likely to negatively impact on prospects for maximal exploitation of IP from UK universities by UK companies.

1.3 The commercialisation process will vary significantly from discipline to discipline and sector to sector and university TTOs need to have a good coverage of experts across those sectors.

1.4 Early phase proof-of-concept (POC) funding is very important, particularly to establish technical feasibility. Research Council (RCUK) schemes are well developed (eg Follow-on Fund) and many charities provide specific opportunities to provide support for technical developments (translational awards). Universities often also create their own POC funding sources, but this is an area where further investment would be beneficial. POC funding can provide opportunities for encouraging a greater degree of innovation within universities and provision could offer considerable value for a modest investment. Sector-specific issues on finding early stage funding are discussed below (paras 2.4–2.5).

1.5 Angel, Venture Capital (VC) and Private equity funds tend to concentrate on spin-outs and start ups. These are generally selective individual investments, which can be time consuming to structure. Over the last 10 years various structured partnerships have developed for investment in university IP, eg IP Group, as well as institutions developing their own dedicated funds. It is too early to say whether these collective investment proposals are going to be a success. However, such initiatives should be encouraged as they add to the UK investment ecosystem generally.

1.6 It is clear that past experiences of floating companies precipitously on the Alternative Investment Market as a means of securing funding for commercialisation has in general not been a success. Some of these companies will need to be encouraged to revert back to private ownership to ensure management commitment and focus is retained.

2 Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors?

2.1 In Life Sciences some emerging technologies are at a significant disadvantage eg gene therapy and regenerative medicine (stem cell technologies in particular where there is ongoing debate about ethics and patents). A number of other technologies may suffer because of regulatory hurdles (for example, designing clinical trial models to test hypotheses in cardiology could be difficult and costly, and Alzheimer’s trials could be very long term). Orphan indications and those treatments with small markets or diseases affecting the third world remain difficult areas.

2.2 Improving the regulatory pathway and reducing time to market is and continues to be a major hurdle for therapeutic and drug discovery programmes. There is an ongoing need to balance patient/user safety against unnecessary and burdensome costs. For example the recent proposed increase in regulation around electronic software used in medical devices is seen as adding to the commercialisation process.

2.3 The traditional ways of drug discovery are also being challenged as are the structure of pharmaceuticals companies with much of their Research and Development being outsourced. Mergers and rationalisations remain an ongoing challenge to commercialisation as do decisions taken by some to cease activities in certain areas or close down operations (eg Pfizer’s closure of its site at Sandwich).

2.4 Funding early stage commercialisation propositions in non-Life Sciences areas is, in our view, less developed with many good but seemingly un-coordinated schemes run by RCUK, Technology Strategy Board (TSB), and the European Commission. Better co-ordination similar to that being proposed between the TSB and the Medical Research Council (MRC) over the new Biocatalyst fund would be desirable.

2.5 More significant funding required for those areas with a long development path remains a significant issue. However in the case of Life Sciences, there are considerable positive developments. The availability of translational research funding eg MRC Translational grants, Seeding Drug Discovery awards by the Wellcome Trust (WT), and the various calls for funding provided through the National Institutes of Health Research, have significantly improved the position where it is now possible to develop ideas within a university environment to a stage where “first in man” studies can be carried out, prior to licensing to pharmaceutical/biotechnology/diagnostic and device companies. We highlight the key role played by the MRC in its approach to funding the “Development Pathway” through its Development Pathway Funding Scheme (DPFS) and the recent proposal to consolidate this with its Developmental Clinical Studies (DCS) scheme provides a good illustration of joined-up approach to funding long term development projects. The recently announced joint Biomedical Catalyst Fund (BCF) between the TSB and MRC looks to improve the position for SMEs.

3. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

3.1 There are many reasons why UK based research is transferred outside for commercialisation but principally these relate to financing (investor foresight and appetite for risk), availability of facilities/infrastructure and management and access to markets. Three recent examples include:

3.1.1Biovex Inc—a UCL spin out developing cancer vaccines transferred to the US in search of significant funding which it secured. The company was subsequently acquired in January 2010 by Amgen in a deal worth $1 billion.

3.1.2Ocera Therapeutics Inc based in the US acquired a licence from UCLB for a novel therapeutic for liver failure and has raised significant funding to progress its clinical trials in the US.

3.1.3UCLB licensed a novel carbon nanotubes technology to the Linde Group in 2011 after struggling to find UK interest in the idea. Commercialisation will now proceed in the US and Germany.

3.2 Examples of other UCL spin-outs based on UCL’s research being acquired by overseas companies include PolyMASC Plc, acquired by Urigen Inc in 2000 and Nervation Limited, acquired by Le Maitre Inc. in 2002.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

4.1 It is clear that the government is taking many steps to try and help improve the commercialisation of research and there is evidence from HEFCE that the provision of specific funds via the Higher Education Innovation Fund (HEIF) has had a significant positive benefit on the commercialisation process along with other areas of related activity.

4.2 The development of impact as an integral part of the Research Excellence Framework (REF) is welcome as it provides a stimulus for universities to put in place processes to track the long term outcomes of research translation and to encourage innovation.

4.3 The use of income to the university as a proxy for activity and success of the commercialisation process is not always helpful because often the university financial interest in IP may have necessarily been diluted in order to raise development capital. More important is to gain some measure of the total value of business developed as a consequence of the commercialisation process.

4.4 The TSB’s role is important in funding businesses to work with universities that have developed IP. There is a high level of expectation for the recently announced Catapult centres to help bridge the gap between university research and business. Initiatives to allow universities developing IP themselves without a business partner (eg for a licensing opportunity) to access TSB funding would be welcomed.

4.5 RCUK and others have been provided with funds which have been used to develop useful new models for engagement between universities and business. The Innovation and Knowledge Centres are good examples of constructing new centres to promote collaboration, which should in turn lead to a greater level of commercialisation. The MRC is highlighted as an exemplar for providing a joined-up approach.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

5.1 Valley of death refers to the period a company goes through after its first financing whilst it is working to get its products to market, generate cash and become successful. This period is generally fraught with difficulties including negative cash flows (which if uncontrolled will result in failure) but also significant ongoing research and development risk, regulatory hurdles, management challenges and competition. It is a necessary process. Many companies and ideas will fail and only some will survive.

5.2 The government has set in place a number of important and potentially helpful initiatives in the Innovation and Research Strategy and the Life Sciences strategy:

5.2.1Funding: For example the reintroduction of Smart awards, introduction of high profile (and substantive prizes), the stratified medicine fund and the Biomedical Catalyst fund. These are all important but need to be seen as ways of supporting ventures at a relatively early stage. It would be helpful to give further consideration to potential government financial interventions further down the development path. There are opportunities for developing this area further and we note the commitments to extending support for Venture Capital, including £200 million for Enterprise Capital Funds but believe that there is a strong case for further investment.

5.2.2Regulation and access: It is important that we find routes to nurture SMEs and provide them with business opportunities to maintain their viability during the early phases of their development. Thus we welcome the extension of the SBRI scheme and the aspirations to improve the regulatory framework in the Life Sciences strategy. We also welcome the government approach to access to data which will provide a stimulus to develop new IP required to develop new business models to take advantage of open data.

5.2.3Tax: The small company R & D tax credits changes are welcome as are the proposals for the Patent Box which will encourage investment in the UK. We also welcome the recent VAT exemption on cost sharing.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved?

6.1 Yes. More funding for the technology growth sector is good. However, the funds need to be provided to those that are best able to deploy them in the most efficient manner.

6.2 A re-launch of the University Challenge Funds is something that many universities including UCL have championed. This was an early experiment with good outcomes and should be reconsidered.

6.3 Biotechnology Industry Association (BIA) have proposed a Citizens Innovation Fund through a retail offering providing tax incentives to private investors. We support this venture in principle but see some operational and tax issues that need resolution, the government could help with this.

6.4 In the longer term we believe there is a need to encourage funds to encourage royalty buy-outs. These should be similar to those that exist in the US, for example Cowen Healthcare Royalty Partners recently raised $1 billion.2 We would also welcome better transparency over previous initiatives, for example the £325 million UK Innovation Investment Fund which was launched in 2009. The European Investment Fund is administering £200 million as the UK Futures Technology Fund and £125 million is being administered by Hermes Private Equity as the Hermes Environmental Fund. Both are operated as Fund of Funds and their success (or otherwise) has been difficult to establish.

7 What other types of investment or support should the Government develop?

7.1 In the context of the current economic climate we recognise the considerable ongoing commitment that government has shown to research and innovation. The following suggestions are low cost and high value:

7.1.1Encouraging collaboration and sharing services between universities: We suggest that there be incentives to encourage further collaboration between universities. For example large research-intensive universities could be encouraged to provide TTO services to smaller organisations unable to justify infrastructure. A simple mechanism would be to identify a small number of leading universities and raise the HEIF cap in order to provide TTO services to smaller local HEIs.

7.1.2Proof of concept funding: .Alongside 7.1.1 it would be beneficial to consider specific investment in POC funding for a small number of leading universities with the appropriate levels of capacity. For example an investment of £20 million per annum would allow the establishment of 10–20 POC regional funds. There could be a requirement to make these available to local smaller HEIs.

7.1.3Easy Access IP: We recommend that a study is commissioned to clarify the likely impact of Easy Access IP policies being pursued by some universities. Although there is merit in some of these schemes it is important that they are sufficiently well constructed to ensure that they maximise benefit to the UK economy.

7.1.4Venture Capital funding: See 6.2–6.4 above.

8. Declaration of Interests

8.1 UCL has a strong track record in the commercialisation of its research and is committed to extending and enhancing its ability to do so. UCL has created a wholly owned subsidiary UCL Business Plc (UCLB) to facilitate the process of protection and commercialisation of Intellectual Property (IP). UCLB uses the full range of approaches to ensure effective commercialisation including licensing, creation of spin-out companies and project development. Where there are technologies which (for whatever reason) cannot be progressed within UCLB, it is common practice to facilitate the orderly transfer of such ideas to others who may be better placed to commercialise those ideas. These could be external parties or the UCL inventors themselves.

8.2 UCLB functions as UCL’s TTO but does significantly more than transferring ideas out. The company operates independently, employing 45 members of staff whose function, amongst other enterprise related activities, includes working with UCL’s researchers to commercialise ideas from the very early stages through to market. This process includes provision of funding (both POC and assistance with application for external translational grants) developing a patent strategy, researching and understanding markets, formulating regulatory pathways where appropriate and finding commercialisation partners. UCLB’s staff are well experienced in the process and are supplemented by external consultants, patent agents and lawyers as necessary. The UCLB aim is to de-risk novel commercial propositions whilst identifying the most appropriate commercialisation route to ensure ideas emanating from UCL’s research are developed for economic and societal benefit.

8.3 UCLB has been engaged in raising investment funds for commercialisation projects, including a partnership with Imperial Innovations to raise £140 million to be invested in spin outs from Imperial College. University of Oxford, University of Cambridge and UCL.

February 2012

1 www.ucl.ac.uk/enterprise/enterprise-views/enterprise-strategy

2 www.cowenroyalty.com/content/news/releases/010512.htm

Prepared 11th March 2013