House of Commons - Trade and Industry

Select Committee on Trade and Industry Twelfth Report

4 THE TECHNOLOGY TRANSFER PROCESS

32. Whilst excellence in research is a necessary condition for a flourishing biotechnology industry, it is not a sufficient one. Germany's late start in commercial biotechnology and the fact that this start has required an extensive (and expensive) development strategy would seem to highlight the fact that, despite a well-respected and well-resourced research base, other factors are needed. The successful translation of the fruits of academic research into a commercial 'product' is, in the first instance, dependent on successful technology transfer mechanisms.

33. The realisation of this fact and a growing awareness of the commercial potential of much academic work has led to a spread of Technology Transfer Offices (TTOs) across UK universities. In comparison with the USA, however, the technology transfer process is very much less developed, a fact that is, perhaps, at the root of some of the reservations we have heard regarding their effectiveness.[23]

Why Commercialise?

34. Recent studies of competitiveness have stressed the role of the education system in fostering growth and innovation and, in a climate where all public expenditure is scrutinised for value for money, for its contribution to the general economic well-being of the nation.[24] The economic contribution of the university system was a theme recently addressed by the Secretary of State for Education and Skills.[25]

35. We did find some anecdotal evidence that in academia, straying from the path of 'pure research' to become involved in its application in a commercial context was frowned upon.[26] But this is decreasingly a problem, and, as UK universities have become aware of the potential to commercialise some of their research, it seems that the academic community has begun to be more enthusiastic; and it may be that the problem will soon be trying to dissuade researchers from trying to commercialise inappropriate work.

36. Relatedly there are fears that technology transfer might be regarded by HE institutions as a means of substantially increasing their income and by governments as a means of gaining a readily identifiable return on public expenditure in this area. It is true that successful commercialisation of technology can create quite large sums of money for the originating scientist, naturally an appealing prospect to those used to an academic's salary. But it was emphasised to us that the primary motivation for technology transfer is to make full use of the practical applications of a scientific discovery.

37. Neither are the returns to the host institution liable to be that significant. It is certainly true that some institutions have earned significant sums from their commercialisation activity. But these are the exception — notable returns to the institution are more likely to be in the form of the increased cachet that it brings rather than huge profits. As one witness put it: "it is highly unlikely that we are going to do deals which will generate huge amounts of money for the institution…Most of the leading universities are doing it because it is expected as part of their mission and because they see it as enhancing their reputation and reinforcing their status as a leading research institution".[27] Even in the United States, where commercialisation of research is a more established practice, the amounts of revenue are limited. Whilst Universities such as Stamford and MIT have earned quite large revenues from their technology transfer activities, they are unusual. Furthermore, whilst the revenues of some universities may look impressive, they may be less so when seen in the context of their overall turnover. For instance, we were told that Duke University in North Carolina, a prestigious university with a strong research profile in the life sciences, earned $4.5 million dollars in 2001 from licensing their technology. However the university has $7 billion dollars of assets and in the same year raised $340 million dollars in externally funded research. Typically, universities in the United States with a successful research commercialisation record could expect to add 3-4% to their total research income.[28] Clearly then, the commercialisation income, whilst no doubt welcome, is not fundamental to university finances in the United States. It should also be noted that any significant returns to Universities on their technology transfer activities are likely to be derived from a very small number of their projects. The MRC Laboratory of Molecular Biology earned £18 million in one year from their commercialised research, but this was attributable to two patents.[29] A recent report on university technology transfer noted that the majority of UK universities received little or no income from licensing.[30]

Technology Transfer Offices

38. A reflection of the greater emphasis on commercialisation in British academia has been the establishment of technology transfer offices throughout the university sector. A Bank of England study found that, though a relatively recent phenomenon — the mean date of establishment was 1995 — all the Universities in their study had established technology transfer offices.[31]

39. The role of technology transfer offices is not only to commercialise their university's research, but also to alert scientists within the university to the possibility that their research may have commercial applications — "…a little bit of encouraging when educating to the possibilities".[32] Furthermore, because academics are likely to lack the expertise to negotiate the commercialisation process successfully, it is vital that the technology transfer offices are able to provide appropriate advice and support, either directly, or through having access to networks of specialists who can be brought in.

40. Commercialisation is not simple. It is not sufficient for the science to be of a high standard. The research also has to offer the possibility that it can be developed to make a new product, or produce an old one more efficiently, on a commercial scale and at a significant rate of return on the considerable investment that is inevitably required. The technology transfer office has a clear role in advising on the commercial attractiveness of research.

41. The property rights to the science also need to be clearly established through adequate patenting. Without this the research will prove commercially worthless as it will lose any exclusivity of use, with companies free to exploit it at will. Patenting is a sophisticated activity and we heard evidence of poorly constructed patents undermining the commercial potential of some technology.[33] Patenting may be an area where the technology transfer offices cannot provide the detailed knowledge required in most areas and may be better served by bringing in outside experts.[34]

42. One of the crucial questions to be answered once the decision to commercialise a piece of science has been taken is over what form that commercialisation should take. The two main routes available would be to offer it to existing companies under a licence or to establish a new, spin-out company to work on developing its commercial application.

43. Licensing technology to an existing company is appealing because of the comparative ease of the process. Tasks associated with spinning out a company such as raising capital or finding suitable premises are avoided. However, the possibility of licensing a piece of technology is dependent on a suitable interest in that technology being shown on the part of existing companies. We heard that in some instances companies had been put off licensing technology by the excessively high prices that some universities were charging.[35] If this is the case then it is obviously a concern. The new technology that emerges from universities is unlikely to be in an advanced stage of development and the company that licenses it will probably have to do a considerable amount of further work to establish whether it genuinely has any commercial application at all. Under these circumstances it seems unrealistic to demand a particularly high price for licences. But if such situations have arisen, they are probably due to inexperience on the part of the technology transfer staff. The technology transfer staff who gave evidence to us said that the price of licences for the universities' technology were determined by how much companies were willing to pay for them, and that they had never lost a licensing deal through arguments over prices.[36] Inevitably that means that some licences that have been bought cheaply have yielded very high returns and, with the benefit of hindsight, it may be that the university might have held out for a better deal. But many licences will yield no return at all to the company and, given the level of development of the technology and the high risk nature of the industry, we would not expect the universities to be losing licensing deals through excessive price demands.

44. A further problem with licensing is that, in order to be attractive to a company, the technology has to be at a reasonably advanced stage of development and it is difficult for university-based scientists to develop their research to this stage.[37] Even where a licence is taken up by a company, a considerable amount of further research is required to develop its commercial application, research in which it would generally be desirable for the originating scientist to be involved. But with an international market in intellectual property it is quite possible for the licensing company to be based in a different area, or even country, making such post-licence collaboration with the originating scientist very difficult.[38]

45. For reasons such as these, licensing, despite the apparent simplicity of the process, is frequently not a viable route for commercialising a given piece of technology. As a consequence the spin-out route, despite the level of difficulty and high risk involved, is often the preferred option. Under such circumstances the technology transfer office will need to help the scientist with business plans with a view to attracting finance.[39] Some technology transfer offices have close links with individual venture capital (VC) companies — we saw evidence of this in the United States where there are many more regionally based VC firms with close relationships with the universities in their locale, but we also note recent developments such as the one at Kings College of the University of London.[40] In some instances the universities are able to provide their own finance for their spin-out companies, though in the UK the funds available are very limited — in the United States we spoke to universities with quite considerable venture funds available for their spin-out companies. The availability of adequate finance is fundamental to the possibility of successful commercialisation and without a sufficient quantity, the technology transfer process will stall.[41]

46. Some universities are also able to offer their spin-out companies accommodation of some sort and specially designed 'incubator space' is increasingly to be found on campuses. This can be a real help to spin-out companies — not only can it remove the pressure of trying to find affordable space from the fledgling company but it can also help the originating scientists to direct the company's research efforts whilst maintaining links with their originating department. This has two obvious benefits. First, scientists are more likely to be enthusiastic about starting up a new firm in a high risk sector where the chances of failure are great if the possibility of keeping their post at their parent department remains. We have seen that many universities in the United States offer very flexible employment contracts to their research staff to allow them to devote a certain amount of time to commercialisation activities. It seems in the UK some universities are better at this than others.[42] Secondly, in the circumstances where those involved with the new company are inexperienced in business, having spent their working lives in academia, being based on campus can ease the transition.

47. The range of skills required to commercialise research successfully is obviously quite broad. As well as, ideally, having a good understanding of the basic science, the technology transfer office staff also need to have some business expertise, spanning areas from finance to law. The level of efficiency with which technology transfer offices carry out the functions required of them is evidently variable. On the one hand we heard complaints about them, and even the technology transfer professionals themselves noted how few really good technology transfer offices there are within UK universities.[43] On the other hand, as noted above, the UK is commercialising an increasing quantity of its scientific research and it is doing so at a lower cost than either the USA or Germany. Such variations in quality as there are between university technology transfer offices seems, in large part, to be a reflection of the relative lack of expertise of a majority of technology transfer staff. This can be expected to improve gradually as experienced staff spread through the HE sector, leaving the good offices to take up posts at those with less of a commercialisation track record.[44] We welcome schemes to promote best practice such as the one in the West Midlands.[45]

48. The reports of variable quality led us to question the need for in-house technology transfer offices at all: could not the technology transfer activities be contracted out, perhaps with the good units taking over the less good? Whilst not ruling out this route, we were persuaded that good in-house technology transfer units were preferable. They can take a longer term approach, perhaps working with researchers over a period of time to develop the commercial potential of their work; they are more able to monitor their university's research activities for commercial potential and build links with particularly research-active faculties, and they can develop their institution's technology transfer activities over time. Furthermore, in so far as there is a variable quality amongst the technology transfer offices and that this is owing to a lack of experienced personnel, contracting out will do nothing to alleviate this shortage, especially as, in a survey of technology transfer offices, they claimed that the main hindrance on their ability to commercialise more technology was a lack of staff. If they have not got sufficient staff to fulfil the potential of their own institutions, they are unlikely to be able to take on the technology transfer responsibilities of others. Specialists can, and it seems are, brought in for specific projects. But even if universities were to make greater use of them, an in-house technology transfer staff would still be required, as their liaison point at the very least, but also to fulfil the sort of long term role mentioned above.

Intellectual Property Rights

49. The technology transfer process in the USA is considerably more developed than in the UK and in evidence references were made to the greater entrepreneurialism there.[46] Technology Transfer in the USA was given huge impetus by the Bayh-Dole Act of 1980. Prior to this, federally funded research, including that funded by the National Institutes of Health (NIH), went largely uncommercialised. This was because technology developed through Government-funded research was only available for licence on a non-exclusive basis, thereby undermining any commercial incentive a company might have in developing it. At the most basic level the Bayh-Dole Act simplified the commercialisation process by establishing a single intellectual property policy throughout the government departments. It gave the institutions carrying out federally funded research the rights to exploit that research themselves. It also gave small firms the right to license federally held patents and thus promoted links between these firms and universities.

50. The impact of the Bayh-Dole Act in the USA seems to have been considerable. Not only did it significantly simplify the process of commercialisation, it also gave a direct incentive to the universities and research institutes to do so. But it also significantly raised the profile of the commercialisation process and increased awareness of the possibility of technology transfer. Universities responded by setting up technology transfer offices in very substantial numbers.[47] As a result of the Bayh-Dole Act, commercialisation in the USA is now done on a very large scale and with a level of resources that we do not have in Europe.

51. We are not convinced, however, that attempting to replicate the measures contained in the Bayh-Dole Act would have the same impact in the UK. In the USA the Bayh-Dole Act was introduced to increase the exploitation of publicly funded research in the context where regulations were acting as a deterrent to this. We received no evidence suggesting that a similar pool of unexploited technology exists here as a result of government regulations on the use of its intellectual property. However, we do suspect that the change in the IPR regulations that the Bayh-Dole Act brought about was only part of the reason for its success — its main contribution may have been the increased awareness among academics and companies about the potential of university based science and the enthusiasm for commercialisation it created amongst leading research universities. There has clearly been an increase in the UK's technology transfer effort in recent years. Our impression is that the UK is still some way behind the USA in this area. However, this is as a result of a relative lack of experience and expertise, and a relative lack of resources, rather than as a result of constraints imposed by government regulations.

Conclusion

52. The USA has a clear lead in the size, and also the sophistication, of its technology transfer effort. Some Universities, such as MIT and Stamford, have gained very large incomes from their commercialisation activities. But even at institutions where the revenues from such activities were much smaller, we were impressed by the commitment to transferring their research into the commercial world and making the most of any potential applications that it might have.

53. The UK's technology transfer process is less developed than the USA. In many ways it appears to be developing in the right direction. We applaud the efforts that have been made on the part of UK universities to increase the benefits to the public through commercial exploitation of scientific discoveries. Although too many technology transfer staff may lack expertise, this will improve over time. However, in the meantime, efforts to promote best practice must be made. Whilst recognising the independence of universities and the sensitivity of individual government departments to incursions into their territory, we think that there may be a role for the relevant sectoral units in the DTI — in this case the Bioscience Unit — in bringing representatives from the various technology transfer offices together with industry representatives in order to exchange best practice and to obtain a clearer idea of what industry wants from the offices. Furthermore, efforts to inform and incentivise scientists in the possibility of commercialising their research must continue.

23 22 Qq 577 and Q 582 (Dr Winter) Back

Back

24 Cf Michael E Porter & Christian H M Ketels , UK Competitiveness: Moving to the Next Stage, DTI Economics Paper No.3 (London, April 2003) Back

25 P. Baty 'Clarke lays into useless history', Times Higher Education Supplement (May 9 2003), p. 2 Back

26 Q 33 (BVCA) Back

27 Q 599 (Dr Williams) Back

28 Q 596 (Dr Williams) Back

29 Q 580 (Dr Winter) Back

30 UNICO-NUBS Survey of University Commercialisation Activities, NUBS (2001) p.15, chart 12. Back

31 L. Quarmby 'The Financing of University Spin-Outs' in Finance for Small Firms - A 9^th Report, Bank of England, London (April 2002), p.70 Back