DR PHILIP WRIGHT, DR ALEXANDER DUNCAN AND DR GILL SAMUELS

TUESDAY 19 NOVEMBER 2002

  540. We talk about incentivisation for manufacturing. That depends principally on things like the tax regime. Are we simply not competitive on that basis, so the pharmaceutical industry has been shifting manufacturing to Ireland or wherever?
  (Dr Wright) Let me give you an illustration. Probably the best way of looking at it is, for example, comparing Ireland and the UK. About five years ago the UK had a larger balance of payments in terms of the pharmaceutical industry. Currently it is about £2.9 billion a year. During those five years Ireland has now passed the UK and in terms of exports the balance of payments is about double that of the UK. They have a balance of payments of about £4 billion per annum.[1]

  541. Positive?
  (Dr Wright) Yes. Compared to the UK.

  542. On pharmaceutical products?
  (Dr Wright) Yes.

  543. Substantially to our detriment.
  (Dr Wright) We have probably stayed about the same, but they have gone up and Singapore has gone up. And Puerto Rico has gone up.

  544. Before I ask my question I must remind the Committee of my entry in the Register of Members' Interests with a shareholding in GlaxoSmithKline. Just following up that question and turning it round, if we fail to develop a manufacturing base in biotechnology, do we risk losing the development and research?
  (Dr Samuels) I do not think so.
  (Dr Wright) I do not think so. I would not want to get too obsessed with the manufacturing. The high regulatory components actually create very few jobs and the cost of capital is very high. While there are financial reasons for doing it, the reality is that we will get manufacturing done somewhere. For small companies that means having access to smaller amounts of materials for clinical trials. Over the next few years there will be a larger number of companies which will be able to provide manufacturing on a market scale. As long as we can make sure that we have access to that manufacturing, then that is the important thing for R&D.

  545. You are claiming in your submission that there is a problem with technology transfer from universities and research institutes. What are the problems your members have encountered?
  (Dr Wright) I think one of the issues that we have is access to knowledge and technology transfer does not necessarily equate to the retention of IP within the university. I am talking about collaborative research. If you have a particular new idea or potential product coming through, it costs £60 thousand to £80 thousand to file a patent worldwide. As we have heard, it takes up to 15 years to get something through to the market. Under current costs it takes, generally for pharmaceutical products from the larger companies, £500 million to get a product through to the market place, including attrition of projects that fall by the wayside. The question is, then, how do you make sure you maximise the net benefits from IP for both parties in a collaborative research project? Quite often the messages are, I think, misunderstood as being that the university should always retain IP. That is certainly one option; it is not the only option. What many of our companies do is take a more flexible approach. They can—and quite often do—prefer to own the IP because, for example, a number of our companies have over a hundred lawyers working within the UK and they understand the global market (which is important in pharmaceuticals). Secondly, they have an active approach to actually building in rewards, milestone payments and royalty streams into those agreements as well. The point should be focussed on net income streams to universities. If you actually look at the overall benefit in terms of licensing income to universities, there was a recent UNICO report which suggested that the average patenting cost for universities was £115 thousand per annum. Their total licencing income stream was about £230 thousand per annum. Those costs excluded the costs of the people actually doing the technology transfer office. As an industry, the pharmaceutical companies spend about £70 million a year inside our universities in the UK on collaborative research. That is excluding contract and clinical trial research; just on collaborative research. I think the point that we would say is that the focus solely on IP is wrong. It should be on how you can get the knowledge out into the market place, and there are a variety of routes: it can be through spin outs from universities, it can be through a partnership approach with industry. There is no one size fits all, and I think that is the key. Gill, do you want to add anything?
  (Dr Samuels) I have very little to add to that, apart from the importance of good patent writing. I think we have all had quite sad experiences where academic tech transfer offices are not very skilled in patent writing and that has meant that the intellectual property has not been well protected. It is impossible for us to invest under those circumstances, because disclosure has already been made and if the patents are not robust we are not going to make the kind of investments that Philip has just described to you to bring a product through.
  (Dr Duncan) One of the things we lack is experience and business acumen. A lot of these companies are started out by scientists who are interacting with technology transfer offices, probably started by ex-scientists. You can start a company up quite well, but 10 years down the line when you are looking to becoming profitable you find that the agreements that you signed some time ago are actually making it difficult for you to be competitive in the global marketplace.
  (Dr Wright) Just another thing to add to that is that ABPI is an organisation—and, indeed, there are other organisations like the CBI—and we have an academic liaison group and we interact strongly with the industrial liaison officers on the university side.

  546. So is it a cultural thing or an experience thing that is causing this problem?
  (Dr Wright) I think it is a bit of both. I think we are at an earlier stage; we are not as experienced as the US. It is also a message thing. Probably the government needs to be very clear about the messages it gives out about the management of IP in universities; that it is not a one-horse race, it has to be horses for courses with a type of collaborative partnership being developed. IP should be managed for the maximum gain for both partners and not just IP retained in the university.

  547. Do you think the university technology transfer departments are much good at all? There are not very experienced at patent writing, was what you said, I think, Dr Samuels. That kind of masks a multitude of sins and it raises the question that if they cannot do that, what can they do?
  (Dr Wright) There are some very good people out there. We could do with some more of them, I think.

  548. Is it 5%, 10 per cent or 90-5%? We are trying to get a picture. The impression we have is that it is patchy. Is it patchy with good patches, or is it patchy with bad patches, with one or two good ones?
  (Dr Samuels) It is not a static situation, I think you can safely say.

  549. Is it improving or getting worse?
  (Dr Samuels) It is improving. Universities have heard the problems. They are, in many cases, recruiting people who have come out of industry and who have the experience and the expertise. That is making a substantial difference. We still have some of the problems of the type I described to you, but less.
  (Dr Wright) I think what is clear is that the better ones do have this portfolio approach. Part of it is also bringing collaborative research from companies outside. The better ones are already doing it. It is maybe the newer ones coming in.

  550. Does the problem stem from a lack of understanding of where the financial gain is or is it to do with wanting to maintain intellectual control over the idea?
  (Dr Wright) Probably a bit of both. In terms of perspective I think IP equals automatic income without a perception of what the true cost of taking a product through to the market place is. I think, quite rightly, there are concerns in the academic community and our members, obviously when then go into an agreement, take note of the issue about ensuring that the university can continue to carry out its collaborative research. There is an issue there. So I would say both.

  551. You have urged on us the need to pay due regard to the issue of collaboration between the bigger companies and the smaller ones. I think we have that message. But in relation to smaller companies, on the issue of going public have you got any views on that? Are too many companies trying to go public too soon?
  (Dr Duncan) I think companies should go public because I think it is good to open up what you are doing to the markets, and it certainly is a way of making your capital fluid. The time when you need to go public is when you have a good story to tell. That means that not only do you need to have some lead compound, but you have to have things behind it as well so that it is going to be sustainable. The reality of the markets is that they tend to be rather up and down, as you are aware. So for most of these companies what they have to do is to sell their first-born to other profitable drug companies so in a sense they are sort of mortgaging their futures to be able to make sure they have access to enough capital to build a sustainable company. The reality for me, I think, is that biotech companies should go public when the time is right for them, and that really has to be when they do have a good sustainable story to tell. Whether they are forced to go earlier or not really depends on the state of the market at the time.

  552. Do you think that the balance is right that there is maybe too much emphasis on trying to grow and float ever more companies faster rather than consolidation?
  (Dr Duncan) I believe in the money markets. I guess my view is that generally they work and the way that they work means that some companies will succeed and others will fail. I do not see that as a bad thing; I see it as a positive dynamic. There are a large number of these companies coming through and naturally the best ones will survive. I think that is probably the right dynamic to have.

  553. A couple of points. Dr Wright, you mentioned the industry invests about £70 million in universities in the UK. What is the total UK investment by pharmaceutical companies? By your members, let us put it that way.
  (Dr Wright) In terms of the major pharma?

  554. Just the industry. How much does the industry spend?
  (Dr Wright) The industry does spend about £3 billion a year.

  555. Three billion.
  (Dr Wright) But if you look at it and you break it down, 23% of that is what you would classify as discovery research. Then if you look at that further, part of that as well is actually in pre-clinical and clinical development. That £3 billion is the total for the R&D spend and does not really reflect what is happening at the exploratory and the early product stage.

  556. If it is 23% and it is £70 million out of £3 billion, then you are talking about two and a half%. So it is about 10 per cent of the blue skies budget. Would that be about right? Just for the record.
  (Dr Samuels) Yes, I think that is right.

  557. How does that compare with expenditure of big pharmaceutical companies in other countries? Do you put as much into academic research in some of the other parts of the world?
  (Dr Wright) The key areas where research is invested in is obviously the US and I do not know what the figure is on the annual basis in the US.

  558. If your company is typical, Dr Samuels, would that be appropriate?
  (Dr Samuels) I do not have the data in my mind.

  559. Could you maybe send us that information?
  (Dr Samuels) I could certainly look at that. We need to remember, of course, that there are additional funds on top that we will put into some of the biotech companies which are at an early stage from the point of view of platform technology and a whole variety of things.
  (Dr Wright) I do have some figures in terms of global R&D expenditure, not necessarily in universities. Would that be of help?