Examination of Witnesses (Questions 474-479)|
TUESDAY 4 MARCH 2003
474. Good morning, lady and gentlemen. Thank
you very much indeed for coming along. Could you identify yourselves
for the record and after that, if there is any opening comment
or statement you would like to make, either collectively or individually,
now is the time to do it.
(Dr Reeders) I am Stephen Reeders. I
am the Chief Executive of MVM, which is a venture capital firm
dedicated to investing in new life science companies.
(Professor Borriello) Pete Borriello, Director of
the Central Public Health Laboratory, which is the national centre
for reference and specialist microbiology.
(Dr Logan) I am Julie Logan. I am Director of SIMFONEC.
We are a science enterprise centre. We encourage an entrepreneurship
culture in four universitiesThe Royal Veterinary College,
King's, Queen Mary's and City University, and we work with clinicians
and researchers to spin out their commercial research.
475. Is there any opening comment any of you
wish to make?
(Professor Borriello) I have one. You have an excellent
set of questions and some of them are very difficult. I hope we
can be of value.
476. Can you describe how new technologies,
particularly those relevant to communicable disease surveillance
and control, are brought to the market place? Where and how are
the key decisions made and where do you consider the weaknesses
lie? It might be helpful in answering this question if you could
give us some examples of the new technologies that are being brought
forward and that you see will be in the market place within a
few months or a few years.
(Dr Reeders) The paradigm for development of new technologies
starts with innovation in universities principally and research
institutes. Then there is a phase where someone or other tries
to translate those inventions to a model or an entity that can
take them forward with capital in order to develop them. Typically
a company will take, in order to develop a therapeutic product,
at least £100 million. In the case of a diagnostic it is
typically between £5 million and £10 million. The universities
initiate the process of development of technology and then there
is a gap where it is not clear who takes over and that gap is
from the point where the scientist has a very good idea to the
point where third party venture capital takes over and invests
in that idea. I would say that one problem to identify at the
outset is that gap, which people call the development gap, and
it is the gap between having a brilliant pure research idea and
understanding the potential applications and then developing those
(Dr Logan) I could come in there and say that that
is a real issue for the universities. We have many researchers
who come forward and as a result of their research they come across
a by-product which could have a very good commercial application.
We can get funding for the pure research and later on we can get
funding to do a prototype, but the funding for some of the basic
testing is missing and we find that our clinicians, our researchers,
are constantly frustrated by this. There are a number of universities
who have what we call pre-seedcorn funds. This money can be used
for that research phase and this money is absolutely essential
but unfortunately we do not have joined-up provision across the
country, so at the moment we have many ideas which are on hold
because we just cannot fund that gap.
(Professor Borriello) I agree with much of what has
been said but I think that is only one side. Certainly there is
a lot of development within company which is independent of independent
research in universities. That tends to be much more market focused
because they are much more market aware. One of the gaps in academia
is ensuring that they become more market aware. That is also true
of a number of companies, although they tend to have greater interaction
with their potential customer base. In crude terms there is the
adage that there may be a gap in the market but there is not always
a market in the gap. Certainly in academia people fail to see
that. For example, there is a diphtheria test kit that we have
developed which would be exceptionally useful for very rapidly
detecting diphtheria toxin which would have great applicability,
but the market is small so it is impossible to get a company to
develop it. Developing those technologies in-house becomes increasingly
difficult because of the proper requirements to comply with the
increase in new stringent regulations, including what now will
be the European In-Vitro Diagnostics Directive. Some of these
systems put in place to ensure proper diagnostics also can have
an adverse effect on making sure that what we call orphan diagnostics
never get into the market place.
477. The gap that you identify is real. I know
from personal experience (although it may have changed now) that
there was a time when commercial companies wished to have something
that would be in the market place within months where it needed
several years of development and the meeting of the two, the research
worker in the university lab and the developer, never happened.
It was quite different in the United States where venture capital
people were willing to put money into the basic development. Is
there a change now from that situation that I experienced, say,
ten to 15 years ago?
(Dr Reeders) There has been a dramatic improvement
in the UK. When I moved back from the United States in 1997, if
you went to talk to scientists at Cambridge, for example, about
the commercialisation of products, they felt it was slightly distasteful
and they were looking over their shoulders to see who might criticise
them for deviating from their research role. Now it is much improved
but you still have a gap. If you go to the University of California,
San Diego, for example, every PhD student has a company that he
wants to put together. If you go to Cambridge now most of the
PhD students have seen other people that have put companies together
but they are still not thinking about applying their technology,
so the cultural change is such that we have done half a circle
towards the US model, and we are way ahead of Germany, France,
every other European country, but we are still not at the US model
where people are already, when they are making an invention, saying,
"What could I do with this? What is the application of the
discovery that I have just made?" I just think time will
be needed plus a stimulus. It is difficult to know what the best
stimulus is but some stimulus is needed that shows them that there
is a pathway they can go along between where they are and where
they want to be and that other people have gone along that pathway
in their institutions.
478. Picking up from the most recent comment
that you make on comparison with the US, where would this transitional
funding come from in the US?
(Dr Reeders) The venture capital community has been
much more active in the US and the scientists are much more aggressive.
A typical discussion in the US, an anecdotal one, would be that
you would go to a young scientist of 23 and his brother works
for Goldman Sachs, his sister-in-law works for Pfizer and he has
talked to the people at Pfizer and he has talked to the people
at Goldman Sachs and he has written a business plan and he shovels
it in front of you as a venture capitalist. It is the entrepreneurial
culture which partly bridges the gap in the US. The US does not
have any University Challenge funds. It does, however, have two
major initiatives which I think should be considered. One is the
Small Business Innovation Research Grants (SBIR) which I think
have been incredibly effective. The quality of those grant applications
is now on a par with the best research done in the best institutions.
The other major initiative which is worth looking at is the Small
Business Investment Company where the government provides guaranteed
leverage to venture capital firms to start up new companies. Right
now, for example, a venture capital firm could start up a new
fund and for every dollar it commits the government will provide
two dollars at a low interest rate, which is the ten-year T-bond
rate plus about half a per cent. That is an incredible incentive.
If you are investing and for every dollar you spend you get two
dollars from somebody else but you are obliged to spend it in
small entities, it really provides the driver for that activity.
The US has a much more aggressive venture capital market. We are
in good shape in the UK; we are certainly way ahead of the rest
of the world. We are halfway across the Atlantic conceptually
in terms of the drive to start new entities.
479. We were talking to venture capitalists
in southern California late last year and they felt there was
no better place than the UK for entrepreneurship at the moment
in terms of the broad financial environment.
(Dr Reeders) The UK is in a very good position, certainly
in the life sciences. Innovation in the life sciences has been
really outstanding in the UK. The double helix was discovered
in the UK, monoclonal antibodies, the first crystallisation of
insulin and haemoglobin, how to sequence DNA, and so on; these
inventions were made in the UK, and so, weight for weight, we
have had an extraordinary record. We do have the innovation. One
of the issues that we face is management. We do not have the successful
serial manager. The policy in our firm is to recruit British people
back from the US. We maintain a database of British people in
the US and we suck them back. We try and find them, go and meet
them and then pull them back.