Science and TechnologyWritten evidence submitted by Sir Gregory Winter FRS (Valley 95)

The Valley of Death is the result of a selection process in which the unfit are weeded out. It is entirely normal and necessary. If we want more research to make its way across the Valley of Death into industry, we can:

(a)increase the amount and quality of the research generally; and/or

(b)focus on research thought likely to lead to translational opportunities; and/or

(c)prepare research for commercialisation before it struggles through the Valley of Death.

I do not propose to discuss (a) or (b), except to comment that it is often not obvious which research will lead to translational opportunities, especially if there is a paradigm shift. I will therefore focus on some aspects of (c).

The Problem

A major problem is that we entrust all these processes to the same organizations; Universities and Research Councils have become responsible for the entire sweep of research through to its translation. However these are rather different processes requiring different skills. In particular the act of preparing work for commercialization requires commercial skills. It can fail for many reasons, most of which are commercial. Thus the research may be too early for translation; insufficient funding; wrong goals; lack of business plan; poor management….

The Universities and Research Councils do recognize the different skill sets required, and use specialized technology transfer offices (TTOs). However the influence of the parent organizations is evident from the TTO focus on early surrogate markers of commercialization, such as number of patents filed, number of companies started and number of licensing deals, rather than the commercial bottom line, revenues generated, profit (or loss) on these activities and/or local jobs created. Indeed the monopoly of the TTOs, the use of early surrogate markers of commercialization and the lack of a profit motive can lead to a bureaucratic attitude. It is common complaint by Industry and individual researchers that TTOs more often hinder than help; researchers and industry would often rather deal with each other direct.

Researchers are also not entirely blameless. Some researchers do not see patents as commercial documents to support a business goal, but as priority documents for their research, or as a statistic to be collected, akin to numbers of conferences attended as plenary speaker, numbers of papers published or cited, or impact factors. In this case, the pressure on TTOs from researchers to patent their research can become intense; it is more difficult to resist if both are members of the same organization that values surrogate markers. In fact there are relatively few patents that will be commercially successful.

A Solution

I suggest that Universities and the Research Councils should focus on commissioning and evaluating research, whether pure or applied (processes and a and b above). I suggest that translation (process c) should be left to independent commercial organizations and to the researchers.

Detail

I shall call these organizations technology exploitation companies (TECs). These would take over much of the work of the current TTOs of the Research Councils and Universities, which would no longer be subsidized by Government funding.

The TECs could be spun out from the existing TTOs or created independently. Funding would come directly and indirectly from Government and the private sector with equity held by each; additional non-dilutive Government funding could be used to drive large strategic investments in key areas. The TECs would be licensed by the Government to work with academia and would have to meet some standard conditions (eg use of standard MTAs, CDAs, agreed formula for rewards to inventors, Research Councils and Universities) to ensure a level playing field. The TECs would otherwise be entirely commercial organizations, competing with each other for market share. Ideally the TECs would not have a monopoly on the research from any University or Research Council, although there may be a case for allowing individual researchers or Departments to conclude three to five year first-option deals with a TEC with whom they have developed a productive relationship.

I am not proposing that we reinvent the NRDC. This was a state monopoly in which individuals, Universities and Research Councils had no share in profits and income; I am proposing a market with competing TECs in which all participating parties would have a share of profits and income. Researchers who were not satisfied with one TEC could turn to another, or use TECs that are specialized in their area rather than the “one-size-fits-all” TTO monopolies.

In due course the shape of these TECs could change. Some would be listed on the LSE or AIM and their shares traded; others might provide participants with shares in the spin-off companies or in royalty streams. Alternatively a TEC might spin off its technology exploitation activities and restructure itself to manage the companies it had already created.

The private equity could be driven by tax breaks. Given the risky nature, it would be necessary to be generous to investors, at least until the TEC market was well established. For example investors could be offered full tax relief on income or capital gains when first invested in a TEC, no taxation of gains or dividends from TEC shares, and ability to offset losses in a TEC against other gains. If generous enough, it might not be necessary for the Government to make additional contributions in return an equity stake. The danger that TECs would be used to front tax avoidance schemes could be limited by a requirement that TECs would have to be licensed by the Government. If successful the Government would get paid from sale of its equity in the TECs, fees for licensing of TECs, and income from tax receipts from successful companies and new jobs.

TECs should not have a monopoly over translation; so any individual or Department or University would not be compelled to use a TEC, and could deal directly with angel investors. However the TEC structure could also provide an attractive route for angel investors to invest in translation due to the tax breaks, particularly if the TECs could ring-fence investments for individual projects. In turn the angel investors would help to bring good business opportunities to the TECs. Likewise with suitable tax treatment, large companies might be motivated to invest in projects through the TECs. Indeed some TECs might specialize in such arrangements.

The setting up of TECs would not only encourage investors and business to take more of an interest on what is going on in Universities, and facilitate and strengthen local enterprise clusters, but it would help bring in good management. In particular we need to encourage the vibrant and risk-taking management culture of the US.

In summary, I suggest we get technology transfer out of the hands of bureaucracies, Universities, Research Council, the Government (and the EU!) into the private sector. By providing sufficiently generous tax breaks for investors the Government could create a new market and leave it to the private sector to create what in the end will be private sector companies and jobs.

January 2013

Prepared 11th March 2013