Science and TechnologyWritten evidence submitted by Dr D J Tapolczay CEO, MRC Technology

MRC Technology (www.mrctechnology.org) is a technology transfer company responsible for adding commercial value to cutting edge scientific discoveries through strategic patent protection, creative licensing of intellectual property (IP), partnered research or further scientific development.

As well as offering technology transfer services to the UK’s Medical Research Council the Company has recently broadened its activity to include helping other charitable and academic organisations (such as AICR) with IP management and commercial development of healthcare-related science, thus bringing valuable income back to the organisations to help fund further research.

Questions Provided by the Committee

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

There are numerous difficulties associated with funding the commercialisation of research. Some of the hardest questions that must be addressed first are what research is worth commercialising and what are the benefits or what is the return on investment that would make funding of the commercialisation worthwhile? The answers to these are frequently dependent on the type or mechanism of funding to be used. Venture Capital or angel funding is clearly looking for a straightforward financial return on the investment whereas state funding or funding from charitable sources will be predominantly interested in societal benefits such as job creation or benefit to the population or sectors of the population. In order to be successful in securing the necessary funding it is critical to address the specifics of the return on investment and make sure that they are appropriate to the source of the funds.

Some very exciting basic research may not have a clear or obvious path to commercialisation or the return on investment proposition may not be clear. In these cases there is often a need for an “act of faith” investment in carrying out a clearly defined small programme of work to evaluate the “feasibility” of commercialisation. This type of funding is extremely difficult to find in the UK. Unless there is access to this type of funding some of the most exciting commercial opportunities may fail to be exploited in the UK. One example of this type of funding is the MRC Technology development gap fund (funded by the MRC but managed by MRC Technology Ltd) which funds very early stage commercial validation of MRC funded research programmes. This and the MRC development pathway funding scheme DPFS are already proving very successful in the biomedical field. However the scale of the funding is still limited and can only fund a fraction of the science worthy of exploring the potential for commercialisation. With more funding available more could be done!

It is also important to recognise that commercialisation of research is a process that has a sequence of events associated with it and that these events all need to be adequately funded for success to be achieved. Each step along the pathway is like a link in a chain and unless the whole chain is intact the process will not complete and commercialisation will not be achieved and indeed money may well be wasted!

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?

Life sciences or health care have specific difficulties associated with commercialisation. Firstly in the drug molecule space the costs of commercialisation are significant! These may include the capital costs associated with access to the necessary equipment and the labour costs of a highly skilled workforce. Secondly there is the time to commercial return. Most venture funds function on a five year cycle time to return yet the time for return in the pharmaceutical space is frequently much greater than eight years. As a consequence, securing venture capital has become increasingly difficult for life science companies in the last five years. There are notable exceptions such as Heptares, Bicycle Therapeutics (both MRC spin outs facilitated by MRC Technology) and Convergence (spun out of GSK) but the point is that these are “notable exceptions”!

However, I believe that the current economic situation in the UK provides a possible solution to this. There are now plenty of redundant pharmaceutical research facilities in the UK that could be exploited for translational research!

There are also a large number of highly skilled and highly trained scientists recently displaced from large pharmaceutical companies with the necessary knowledge and ability to take on the challenges of translating the output of basic research activities in the UK and even those from other nations. This opportunity, created by the current economic circumstances in the large pharmaceutical corporations, could see Britain become the innovation and translation centre for the world if a suitable mechanism for funding these activities can be found! Britain has a long and very distinguished history of innovation in this area. A survey by BIS reported that 20% of all prescription medicines on sale throughout the world can trace their origins to the UK. This is despite the fact that UK spend on pharmaceutical R and D is 1/16th that of the USA!

I believe that a generic single “fix” across all sectors will be very difficult to achieve. In fact it may be so generic that it will be difficult for each sector to see how to make it benefit. The principle of funding for translational research available to all sectors is fine but individual sectors should have funding systems tailored to their specific needs. A good example of this is the recent creation of the MRC/TSB Biomedical Catalyst for life sciences. Similarly the announcement by the Wellcome Trust of the creation of a new Venture Capital fund is good news. It is important to remember that the creation of a fund is not the “fix” in itself. How the fund operates and its ability to select what warrants funding and on what basis (of return) will determine the degree of success achieved. There are many examples of Venture Capital funds that despite having substantial funds have failed to make an adequate return on their investments in biotech and lifesciences.

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

I have personal experience of where this has happened. It may not all be totally negative but I question whether better economic return could have been achieved in the UK by continued exploitation in the UK. I was personally involved in the creation and development of two companies in the UK. Cambridge Discovery Chemistry and Cambridge Material Science were start ups in the UK that became successful profitable SME businesses in Cambridge. In July of 2000 both of these companies were acquired by Millennium Pharmaceutical Inc, a Massachusetts based biopharmaceutical company. Post the acquisition, both of these UK companies were closed and the knowledge base transferred to the US with the loss of 130 UK jobs.

MRC Technology also provides several good examples of where UK innovation can lead to economic return in the UK but where the availability of suitable funding and a greater appetite to risk could see much more substantial economic gain. MRC Technology incubates early stage research using both MRC and MRC Technology financial resources and MRC Technology physical resources (namely industry trained scientists employed by MRC Technology). In the pharmaceutical and Biopharmaceutical area, these early stage assets are taken through to early pre-clinical stage before being partnered with major pharmaceutical companies. Two such examples are the monoclonal antibody products Tysabri and Actemra. The MRC Technology income from these two products totaled approx £22 million in the 2011–12 financial year. This income is derived from a small % royalty that was negotiated by MRC Technology at the point of licensing. Had MRC Technology had the access to suitable UK funding to develop these products to clinical phase 2, the revenue stream from a deal for such Phase 2 assets would have been potentially three to six times higher. Both of these assets were licensed to US and European companies.

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

The MRC funding of MRC Technology activities provides substantial evidence of improved commercialisation of research through both the creation of new companies and hence employment in this sector in the UK (eg Celltech, Cambridge Antibody Technology, Domantis, Heptares and Bicycle Therapeutics), the commercialisation of new technologies (phage display and cdr grafting for antibodies) and new therapeutic products (eg Herceptin, Humira, Avastin, Actemra, Tysabri and Benlysta). This has generated more than £550 million in income in the UK.

MRC Technology has a triage system for analysing all new opportunities for translating basic research towards commercialisation and there are more projects that pass the triage than MRC Technology can fund using its own resources. MRC Technology are currently exploring links to other UK charities in order to identify additional sources of funding in order to take more of these projects forwards.

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

In some respects it is too early to tell. Undoubtedly the injection of cash into translational activities will show measurable results but the more difficult question will be were these the best possible results? By this I mean look at the life science VC community as an example. Many large funds have made investments in life sciences but not all are successful; indeed some has ceased investment in this sector or at least decreased it whereas others such as Abingworth have been disproportionately successful. The creation of new funds especially from the public sector is difficult enough in the current economic circumstances but it therefore becomes even more important that they are appropriately applied!

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?

Yes without doubt this will help provide opportunities for additional exploitation of basic research here in the UK. It should be remembered however that VC funding is notnecessarily applicable across all areas of translation in the life sciences. The time to return on investment in the VC community means that VC funds are increasingly targeting later stage investments in life sciences. This means there is an increasing need for “bridging” funding to cover the gap between basic research grant funding and the later stage VC investment. Also VC investment is primarily interested in straight financial return to the fund investors, not necessarily in other societal returns such as job creation or even patient benefit in areas where there is unmet medical need but small patient populations.

The corporate venture companies of the major pharmaceutical companies are a good and, in my view, in the UK “under invested” group. The government could approach the corporate ventures arms of the major multinationals looking to get them to apply more of their funds here in the UK.

In my view it has for some time been true that there is an increasing need for public private partnership funding of translational activities. The public funding is there to look for the “societal” returns on the investments made and the private funding to maximise financial return. In this way both parties can minimise risk of exposure in a particular investment, and in doing so increase the number of opportunities funded.

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

The government has always been active in facilitating investment in the UK from foreign investment funds and companies. This has been very successful in many sectors. I think that there is still more to be one in the life sciences sector. As I mentioned earlier, the current situation in the UK with site closures and job losses provides a tantalising opportunity to see the UK become a global leader of translational innovation in healthcare. A new business model exists to exploit this opportunity and bring foreign investment to the UK. It should be used for the benfit of the UK before other nations see the opportunity!

April 2012

Prepared 12th March 2013