Written evidence submitted by Response by Smartkem Ltd (IGR0005)
Introduction
Smartkem (founded in 2009) is a specialist electronic materials company serving the multi-billion USD organic semiconductor (OSC) market. The company is focussed on the rapidly emerging flexible/plastic emissive display sector where its high-performance polymeric inks have generated significant industry interest, particularly in East Asia, and is now poised to drive growth once qualified for manufacturing at scale. The company’s specialist expertise in materials science and processing for electronics has enabled the company to deliver a strong IP portfolio relating to its core organic materials, formulations and their use in several significant product applications and market sectors, including displays, advanced microprocessor packaging and Internet of Things (IoT) sensors. It is continuing to add to this intellectual property portfolio along a well-defined technology roadmap. This includes 225 patent applications of which 75 are now granted, 150 pending, and these present a considerable barrier to market entry for others. Smartkem’s team of 30 staff, including 7 PhDs have extensive experience in organic synthesis, device physics, semiconductor processing and display technology.
In 2021 Smartkem Ltd. became a wholly owned subsidiary of Smartkem Inc. a business listed on the Nasdaq stock exchange. Smartkem’s headquarters are located at our 8000sqft R&D facility at Blackley, Manchester where a team of synthetic chemists, device physicists and formulation scientists develop the fundamental understanding of the materials chemistry. Materials are then transferred to the Smartkem device engineering and integration team located within CPI (part of the HVM Catapult Network), based at Netpark, Sedgefield, to understand how they perform in larger scale processing tools similar to those found in a display pilot line. Because its largest potential clients are in the East Asia, Smartkem has a field applications engineering office in Hsinchu, Taiwan which is located 5km from ITRI; ITRI being a world-leading applied technology research institute with more than 6,000 mainly technical staff. Founded in 1973, its mission is to drive industrial development, create economic value, and enhance social well-being through technology R&D. Companies such as Taiwan Semiconductor Manufacturing Corporation (TSMC) grew from initial R&D work conducted at ITRI and now are world leaders in IC manufacturing.
Answers to specific questions in the call for evidence
Specific government policies over the past 15 years have improved the prospects for commercialisation of new technologies. In particular, the establishment of Catapult centres has enabled a faster translation of technology from early Technology Readiness Levels ‘TRL’ ranges 1-3 into higher TRL (4-7), and with lower capital investment and risk. Capital investment by the Catapults, accessed by businesses through the shared access facility model, have allowed greater resources to be directed towards employment of scientists and engineers. This in turn, speeds up the innovation cycle with new technologies in global emerging markets and provides technical ‘bandwidth’ to handle more commercial opportunities. The employment opportunities enabled through this model have provided attractive UK based careers for STEM graduates, maintaining and growing a pool of talent with modern industrial skills and experience. This is of particular importance following the UK’s exit from the EU and the high cost of visa sponsorship for non-UK based candidates.
R&D tax credits have been an important source of funding support that can offset some of the high cost of new technology development however, in recent years, changes to the tax system have reduced this benefit significantly.
Innovate UK collaborative research funding is another effective support mechanism for commercialisation. In particular, the more recent increase in the number of bilateral international competitions (e.g. UK-Taiwan, UK-Germany, UK-South Korea) has been helpful to fund ambitious research and development initiatives with leading companies located in the dominant manufacturing regions (the UK, sadly, having no meaningful domestic players as end customers to develop early scale). Smartkem will likely generate most of its income through the export of high value chemicals outside of the UK, in particular to Asia, therefore these types of bilateral programmes facilitate end users to conduct larger R&D programmes with OTFT technology. In general, we think that the Innovate UK approach to competitions leads to a higher TRL improvement than through EU funded projects (which can also be too complex and slow), and so we would not recommend that significant changes should be made to this successful model of funding.
Private sector funding for commercialisation and scale-up of UK innovative companies remains a major challenge that the Government has yet to solve. In the past 15 years Smartkem has been fortunate to have gained access to UK-based VC funding. However, many emerging ‘hardtech’ companies in the UK struggle to raise capital from UK financial markets, which tend to be limited in ambition, risk appetite and understanding of the sector. In 2021 Smartkem could not raise further funds in the UK and hence sought capital in the USA, resulting in the parent company Smartkem Inc., a NASDAQ listed business based in the USA. Most operations, including R&D and materials manufacturing will stay in the UK as long as the business environment remains favourable for this. Recent policy changes and proposals to make further VC investment available is improving the options (e.g. UK-Infrastructure bank, changes to pension fund rules etc), but Smartkem had no choice but to look elsewhere for funding prior to these new initiatives.
One of dominant contributors to growth and prosperity in the inward investment attracted to the region. Two examples that can be cited from the Northeast region’s perspective are Smartkem and Pragmatic semiconductor. Smartkem has raised ~$80M to date and Pragmatic Semiconductor ~$400M. These two companies would most likely not have succeeded in scaling to their current size had the regional and national investments not been made into the Printed Electronics Facility at the Neville Hamlin Building in Sedgefield (operated by CPI), formerly known as the Printed Electronics Technology Centre (PETEC). PETEC was a topic discussed in a previous Select Committee enquiry into Plastic electronics engineering: innovation and commercialisation[1] (in 2009) where there was much debate about the proposed model of the business (to work internationally as well as nationally) and the location (e.g. Sedgefield rather than somewhere in the “golden triangle”). 15 years later, the combined $480M inward investment (mostly) to the region (plus additional economic benefits of the centre in addition to this sum) has shown the public sector investments made from 2007 to 2012 (~£35M) to be very good value for money in our opinion.
Another side of the economic benefits of a cluster comes from the nature of the new jobs created. Salaries for engineers, scientists and technicians employed by companies such as Smartkem and Pragmatic are higher than for lower skilled jobs. Moreover, technology companies are supported by local service organisations (for facilities, equipment servicing and technical subcontracting), which also retain high-value-added jobs.
In time, once a critical mass of companies and activity is present in a region, it is likely that more similar companies would be attracted to the same area, benefitting from the pool of trained personnel and technical support ecosystem. (Developing such a critical mass in a region will take time and requires the Government to adopt a consistent supporting policy that spans many parliament terms – perhaps a generation.) There is good historical evidence for how consistent investment at scale in innovative science has worked to support regional (& national) growth:
Foreign government intervention at very large scale in electronics sectors (such as in South Korea and to some extent in China) has been directed at the higher TRL levels (7-9), (that is, where the money is made from selling proven products in mass production facilities), to dominate an industry. Integration of newer technologies (e.g. OLED) became a priority for South Korean companies, which then created a system to effectively pull through viable lower TRL to the higher TRL.
The question of whether a technology is viable for mass production is more easily answered by organisations who have previous manufacturing experience and facilities to support prove out – which is common in the East Asia and now missing in the UK. The means to realising that production scaling is with the OEM manufacturer. Therefore there is a risk that, unless UK hardtech companies invest to scale-up technologies themselves, they will be restricted to a limiting licensing model or destined to be acquired at an early stage by a foreign entity, long before the scale manufacturing income could have a major and enduring benefit for the UK economy. Looking positively, a well-resourced and ambitious foreign manufacturer may be inclined to expand the development and pilot capabilities in the UK region; but there is also the risk of a gradual transfer of development expertise to the owner country. In semiconductors then this will likely be a company in Asia (South Korea, Taiwan, Japan or China) or the USA.
3. How is research and innovation diffused or supported to drive productivity and growth in the regions, wherever it may come from?
Catapults can and have supported technology development through the provision of specialist capital assets and facilities. The importance of this to the companies using them is underlined by the substantial inward investments to the region made into these companies (detailed previously in this response). Changes to this successful model through under-investment or abandonment of the required pilot and prove-out (TRL 4-7) facilities will mean that the current substantial economic progress could be put at risk. This may result in the existing successes being a one-off if the model is not successfully managed. Since the CPI Printable Electronics facility at Sedgefield was one of the earliest established Catapult facilities (infrastructure now between 14 and 17 years old) then there is an urgent need to look at the capital needs of the facility to maintain state-of-the-art facilities, its day-to-day management, and its strategy for incubating existing and new companies to pull in the next $500M of inward investment. A close involvement of the current and prospective industrial users of the facility would have a dual benefit of providing a pipeline of users and help direct public funding into avenues with a return on investment.
10 January 2025
[1] https://publications.parliament.uk/pa/cm200809/cmselect/cmdius/759/75907.htm