Written evidence submitted by Imperial Innovations Group plc (MIP0020)
Executive Summary
1. Context & Background – what does Imperial Innovations do to commercialise Intellectual Property?
1.1 Imperial Innovations (“Innovations’) combines the activities of technology transfer and technology commercialisation and patient capital investment. Innovations is the technology transfer office for Imperial College London and also provides investment funding to university/academic-associated ventures from across the South East of England (but focused on Imperial, UCL, Cambridge and Oxford).
1.2 In an average year, Innovations signs 30+ licence deals, forms 6-8 new companies, files more than 60 patents and receives and assesses more than 300 invention disclosures from academics at Imperial College London.
1.3 Innovations provides a series of services to its academic partners at Imperial College London. Academics benefit from access to extensive knowledge and experience on how to proceed with commercialisation. Services include but are not limited to:
1.4 Imperial College ranks highly in terms of commercialising intellectual property and entrepreneurship. A study commissioned by the MIT Skolkovo institute found that Imperial College was one of three UK universities ranked alongside MIT and Stanford from the USA in creating entrepreneurial ecosystems, with other two universities being the University of Cambridge and University of Oxford (Graham, 2014, p. 21).
1.5 Innovations is one of the pioneers of the Patient Capital funding model which has emerged as a market response to so-called “valley of death” caused by the fact that the early-stages of IP development out of UK academia are often too risky and too early-stage to attract VC investors. A paper written by Imperial Innovations describing the rise of Patient Capital funding and University venture funds in the UK can be found here: http://www.imperialinnovations.co.uk/technology-transfer/documents/patient-capital-new-way-fund-uk-science/
1.6 Since Innovations listed its shares on the AIM of the London Stock Exchange in 2006, it has:
2. Developments in the commercialisation practices of Universities and Technology Transfer Offices (TTOs) in the past decade.
2.1 University TTOs have transformed themselves in the past decade. At one time these organisations solely focused on filing patents and (often) fruitlessly seeking a licensing partner for an underdeveloped technology, many TTOs now have the appropriate capabilities and access to funding to help manage technology development & commercialisation, finding ways to de-risk technology assets and increase their chances of finding a route to market. During the last decade revenues to UK universities from licensing and the sale of spin-out companies have more than doubled and the investment in intellectual property by universities has risen by a third. (HEFCE, 2016, p. 29)
2.2 This change is characterised by a willingness and ability to find the best route forward for new technologies at a certain stage of development, rather than focusing on licensing models alone. In the case of Innovations, this has meant forming more spin-out companies, exploring innovative licensing models such as evaluation or collaborative development agreements with industry and supporting further technology development where possible, through proof of concept funding or by leveraging translational funding (e.g. from charities or government). In general, TTOs have expanded the range of services they provide, acting as centres for innovation and enterprise and providing the necessary component parts to build an ecosystem consisting of IP development, management and mentors, start-up spaces, access to capital and co-location with industry, service providers and funders.
2.3 This has been underpinned by a number of important developments in the field:
2.4 The combined effect of the above has been to empower TTOs to explore and execute new pathways to technology development. This can be seen in for example the rise of ‘patient capital’ within the UK, an investment model particularly suitable for advanced technology businesses such as those emanating from university research. (Hickson, 2016). Many university TTOs including Imperial Innovations, Cambridge Enterprise, Oxford University Innovation and UCL Business have either launched their own funds or become closely involved with partner/sister funds aimed at evergreen investment. It has also yielded initiatives such as Apollo Therapeutics, a £40m joint venture between three leading pharmaceutical companies, Imperial Innovations, Cambridge Enterprise and UCL Business which will advance academic pharmaceutical projects to the point at which they are suitable for licensing to industry (http://www.apollotherapeutics.com/).
2.5 Overall, the skill, resources and experience of TTOs have increased substantially in the past decade, leading to a focus on developing technology along varied routes to market and developing local ecosystems, improving the chances of successful commercialisation and resulting societal impact.
3. Can UK Universities adopt a common approach and is there scope to share best practice?
3.1 There is no ‘one size fits all’ solution to university technology transfer. Many suggestions have been made ranging from Easy Access IP (IP Pragmatics Ltd, 2015)to the Golden Share proposal (Hockaday & Hickson, 2015). However, these suggestions fail to recognise the diversity of the UK’s universities and the diversity of technologies being handled. What works for a regionally focused, teaching intensive university may not work for globally focused, research intensive institution. Equally, the approach needed to get a therapeutic drug to market is very different from that required to bootstrap a fast-moving small software business to market. Experienced TTOs recognise the need for different approaches to these different markets and adapt appropriately.
3.2 Commentators may assume that TTOs do not communicate with each other and instead compete. In fact, communication levels are high and competition between technology transfer offices is far lower than the competition between their parent universities. Universities compete for funding resources, reputation and the best students, whereas TTOs serve a single internal customer (the academics) and, because they deal in unique and novel technologies, have only a small likelihood of competing for industrial partners with similar technology at the same time. Because of the low amount of competition and because of the benefit of ‘critical mass’ there is growing evidence of collaboration between UK TTOs happening naturally (many TTOs are small and trying to do similar things and hence recognise that by teaming up they can be more effective together).
3.3 An example of inter-university collaboration at the technology transfer level is Apollo Therapeutics, in which Imperial Innovations and Imperial College are both involved. Apollo was created in order to substantially de-risk academic pharmaceutical projects and improve the chances of them making it to market. Such projects require extensive development and funding and there is a very high associated attrition rate. Apollo brings together three Universities (Imperial, UCL and Cambridge) and their TTOs and three industry partners into an open system where academic groups from all three universities compete for funding on the basis of merit. These funds are allocated by the Apollo Investment Committee, which is a panel made up of the 6 partners. This form of collaboration has arisen out of necessity (the best form of collaboration being where the partners need each other and derive mutual benefit) in order to beat the heavy attrition rate and substantially improve the chances for commercial success.
3.4 Outside London and the South East, groups such as SETSquared (http://www.setsquared.co.uk/) have emerged, combining the deal-flow of multiple universities in order to attract investment and potential management groups. This collaboration arose organically, has brought substantial critical mass and has made incubation and attracting investors a more viable option for five UK universities which are geographically dispersed.
3.5 There have also been efforts by various TTOs to collaborate administratively, e.g. by providing harmonised approaches to licence agreements, or unified technology listings, or through initiatives such as Easy Access IP:
However, it is important that such agreements and collaborations are allowed to happen organically and where there is common need and benefit, rather than be centrally enforced. There are many reasons for this, not least of which is the fact that no two TTOs operate in the same way, and no two technology projects will benefit from exactly the same approach. While there is common ground, TTOs have repeatedly proven themselves able to find it and leverage it.
3.6 In addition to the above, there are many reciprocal knowledge sharing activities between individual TTOs which assist with creating a community of practice. This includes the activities of PraxisUnico, which delivers training from highly experienced practitioners back into the community, and less formal initiatives such as regular meetings between senior TTO staff from various organisations to share knowledge and challenges. UK TTOs are also increasingly active on the international stage, with strong attendance and representation on panel discussions at the Association of University Technology Managers (AUTM) annual conferences and the European equivalent (ASTP).
3.7 Nonetheless, whilst the UK technology transfer sector as a whole does a good job of promoting collaboration, more could still be done. For example:
4. Are UK University Technology Transfer offices ineffective or a barrier to industrial interaction?
4.1 Many of the criticisms levelled by industry commentators or in reports such as the Dowling review (Dowling, 2015) can actually be traced back to sponsored research contracts between industry and universities. It is widely thought that in many universities the TTO is involved in the negotiation of sponsored research with industry. In fact, this is often incorrect, especially in larger, research-intensive institutions. TTOs generally focus on commercialising ‘existing’ IP, whereas collaborative research programmes are necessarily more complex, needing to balance the pre-valuation of unquantifiable future ‘arising’ IP against covering the costs of the research (Full Economic Costing or overhead rate). This is not a case of universities trying to shift the focus, as it is incumbent on universities and industry to work together to try to address these issues. However, it is important that the role of TTOs is better understood externally, especially as the scope of their responsibilities can vary hugely across institutions (with the TTOs in smaller institutions often having a more expansive role). More effort from universities to help industry navigate their internal set-ups, and more effort from industry to try to understand each university’s organisational structure before engagement will go a considerable way towards correcting these misunderstandings. Many universities (including Imperial College) now include business gateways and corporate partnerships units to help professionally guide and manage industrial engagement, but many companies (especially SMEs) lack experience in dealing with and navigating the structure of universities and this may lead to frustrations on both sides.
4.2 UK Universities and their TTOs are getting better at getting technology out of universities and creating high quality, sustainable spin-out companies. The Spin Outs UK 2015 report highlighted that while there are fewer spinouts generated overall, "The sector has become more efficient, with more successes and fewer failures.” (Spinouts UK, 2015, p. 4)
4.3 Analysis from the McMillan report (HEFCE, 2016) shows that the rate of start-up formation by UK and US universities is identical when adjusted for research income. US Universities receive five times more research income than UK universities and form five times as many spin-out companies (Table A, p. 25). Many global companies and investors cite the UK as one of the best places in the world to form new start-ups.
4.4 Universities have stepped in to address the scale-up funding gap by raising their own dedicated funds (Oxford Sciences Innovations, Cambridge Innovation Capital, University College London Technology Fund) and engaging with high profile patient capital investors. They represent an example of Public: Private initiatives that have developed naturally to help fill a gap in the market (early stage start-up funding out of academia).
4.5 The recent McMillan review of Technology Transfer found that the UK university system of technology transfer operates to a world class standard, though advocating that we should remain aspirational in our practice. When compared to the US system of technology transfer, the UK was found to be equivalent or better by all measures except IP income from licensing (HEFCE, 2016, p. 25).
5. Are funding structures for research commercialisation by TTOs adequate?
5.1 A major issue for Universities in funding research commercialisation is that most TTO operations are loss making. For instance, in the US, 85% of TTOs make a loss despite operating TTOs since the 1950s (Valdivia, 2013, p. 9). As such the reality is that technology transfer requires long-term, possibly continuous investment from the University. How this balance should be struck depends very much on the particular circumstances of individual universities and therefore should be reached by the university senior management who need to recognise the desires and objectives of the multitude of stakeholders involved and potential outcomes that can be achieved This is complicated further by the ‘blockbuster’ dynamic of a few (mainly US based) TTOs that may ‘strike oil’ with a substantial royalty bearing licence deal for a brief period of ten years or so, but could potentially revert to being loss making when the patents expire. Therefore long-term government support to underpin capacity building and sustainability is of utmost importance to the sector.
5.2 The transformation of the UK Technology Transfer sector over the past 10-15 years has been largely underpinned by the provision of long-term, stable funding from the government via HEIF, coupled with stimulus schemes such as the University Challenge Seed Fund, SEIS funds and Impact Accelerator Accounts. Among other benefits, this has helped the entrepreneurial support ecosystem around universities in the UK to become more sophisticated and better resourced, especially in major hubs such as London, Oxford, Cambridge and Manchester, but also in areas where universities have elected to team up for critical mass (e.g. SET Squared).
5.3 The availability of Proof of Concept (POC) funding has also enabled experienced TTOs to move towards technology development, taking promising inventions and moulding them into technically de-risked and commercially attractive propositions for industry. This sort of work is essential for a modern TTO. However, Proof of Concept funding is not as widely or consistently available as it should be and this must be addressed in order to further unlock the potential of TTOs to be transformative agents in the commercialisation process. It is POC and HEIF funding, among other government and charitable translational funding (e.g. Biomedical Catalyst awards and MRC DFPS/DCS), that enable TTOs to move beyond being instruments for short-term cash generation and towards offering valuable and fundamental support for the sort of innovation that helps underpin the UK’s competitiveness in innovation and novel technology generation.
5.4 The Government should consider lifting the cap on HEIF funding in order to enable the best-performing universities and TTOs to substantially increase their contribution to technology development and innovation. The best universities have the potential to do a great deal more and are limited by a formula-based cap on HEIF funding. Based on current estimates £1 of HEIF levers between £6.40 and £7.30 of knowledge exchange income, with the impact disproportionately higher for the UK’s top 6 Universities where the return can be as high as £21.50 for every £1 of HEIF funding. We would suggest the amount allocated to HEIF should also be increased and the cap removed (or raised), becoming proportional with outputs. The UK has some of the world’s leading universities for research and teaching, and with additional support they can become the world’s best for translational technology development and entrepreneurship.
5.5 Innovations also believes that core funding for Proof of Concept stage projects should be separated out from HEIF and with the express purpose of supporting technology development (rather than funding the operation of TTOs) and should be introduced as part of a strategy to support entrepreneurship in the higher education sector. Any such funding should be allocated locally by the university (or a group of smaller universities in a region) to minimise bureaucracy and allow fast and nimble decision making.
6. Do current funding structures facilitate an appropriate balance of objectives and an appropriate balance between short-term and longer-term aims?
6.1 Funding sources for Technology Transfer Offices include HEIF, revenue from deals and third party funding (from universities, corporate parents among others). HEIF provides continuity of funding and confidence for long-term development, but the amount of funding is insufficient, hence universities or corporate funds need to invest. This creates a tension between investment in teaching & research or TTO activity. Universities must take a view about their commercial objectives: either focusing on impact with sub-optimal commercial returns in order to keep costs low, or improved chances of commercial success with deal terms that provide an appropriate financial return.
6.2 The majority of deals transacted by TTOs for university technologies are structured such that the university and the commercial partner/investor both share in future upside in the event of success. The main models of return are equity and royalty, both of which have a relatively small or zero valuation at the time of formation, but align all parties’ interests towards long-term mutual success. As such, the only real forms of shorter-term returns are in the form of upfront fees and nearer term milestone payments. With spin-outs, most TTOs no longer take any significant upfront fees (often zero or simple patent cost recovery), instead considering their equity and royalty stakes to be adequate. Where there are milestone payments they are often deferred downstream to when significant value inflexion points have been achieved. This is especially prevalent in health and life sciences where milestone payments are commonly used and accepted, generally applying at clinical study initiation points.
6.3 For some IP assets an upfront fee may be fully justified. For example, an advanced clinical therapeutic drug in phase 1 or 2 would command a substantial upfront fee if being licensed from a biotech company to a pharmaceutical company. Is it right to expect a university TTO to not ask for a similar fee (i.e. market price) for similar stage asset, simply because the university is partially funded by the UK taxpayer?
7. How well universities and TTOs balance objectives of protecting IP and encouraging public-benefit research, and whether TTOs’ and universities’ IP strategies effectively deliver such objectives in practice
7.1 Academic researchers have the right to publish all of their ideas. TTOs never stop publication, and if they request a brief delay to allow IP protection it is only ever with the consent of the inventor and for as brief a period as possible.
7.2 Patenting is a mechanism for public dissemination of knowledge. The state grants a monopoly right over the invention in return for it being released into the public domain rapidly. This allows researchers to practice such inventions under the research exemption legislation for science to continue to progress without delay or secrecy.
7.3 Universities utilise open source mechanisms widely, enabling copyright in code to be distributed widely and improved. Various forms of such open source licence exist, but all act to ensure that copyright does not become an impediment to widespread usage.
7.4 Universities utilise non-exclusive licensing where technologies lend themselves to repeated use by multiple parties. This is mainly seen in areas such as apps, software, biological and chemical reagents, disease models, images etc. Universities are increasingly setting up express licensing portals to facilitate such non-exclusive (and often relatively low cost) rapid dissemination of technology. For example, Imperial Innovations uses Quicktech (http://quicktech.imperialinnovations.co.uk) to market over 100 smaller technologies to a widespread audience, generally on a non-exclusive basis and using a simplified a rapid licensing approach.
7.5 Universities (including Imperial) provide the opportunity for researchers to take forward any ideas declined or abandoned by the TTO. As such, if a researcher disagrees with a TTOs decision they are free to find alternative routes forward for a technology if they are able to do so.
7.6 There appears to be an external perception from some commentators that the valuation of IP could result in some technologies not being progressed into development and society. The experience of Imperial Innovations is that this is a misnomer, and very few technologies fail to progress due to disagreements over price or valuation. By far the largest gating factor (and where attentions should be focused) is on finding and matching partners to a technology. TTOs expend much of their energy here, often with a low success rate and largely dependent on the academic’s contacts, which are often the very best way to market a technology. More efficient mechanisms for partnering technologies need to be found, probably utilising a sector specific approach given the large disparity in approaches between different sectors.
8. Are SMEs and larger businesses given equitable access to commercialisation opportunities?
8.1 Any difference in access is likely an issue of resources. TTOs have limited budget and human resources to market themselves and their technologies and so will naturally target larger organisations which make themselves ‘more discoverable’. Conversely, larger organisations are more likely to employ staff whose role is to discover new technologies and have more resources to engage. Note that, despite this, the outcomes from licensing by Imperial Innovations suggests that the split between larger corporates and SMEs is fairly even. However some degree of ‘self-generated bias’ may exist here as we create an ever-larger community of spin-outs around the university which often return later to harvest new IP.
8.2 While any initiative to introduce technologies to SMEs is to be welcomed, it is also the case that the vast majority of UK SMEs are not suitable technology development partners due simply to the fields in which they operate. It is certainly the case that SMEs can operate in fields that would benefit from novel technologies, but they are often limited in their resources and experience and may lack the patience to deal with universities in the way that larger, more established businesses can. Therefore a more efficient method of making technologies visible to SMEs and a way to support their interaction with universities (through, for example, the provision of experienced mentors and lawyers) may be a useful outcome in the future.
8.3 In the case of Imperial Innovations, we strive to ensure our technologies are discoverable and offered to all businesses regardless of size. Our available technologies are clearly marked on our website and we offer direct contact to the managing executives through a simple online form. Furthermore, we have developed short term, low or zero cost evaluation licenses which can help reduce the risk to businesses of all sizes by allowing a ‘try before you buy’ evaluation period with a break clause as part of the deal.
9. What measures may universities, business leaders and Government take in order to assist the commercialisation process and reach a common understanding of the different stakeholders involved can engage in the process?
9.1 Whilst much opprobrium is directed against universities and technology transfer office with regard to their involvement in the process of technology commercialisation, it is important to ensure that industry and investors take some responsibility too. The variability of TTO performance across the sector is acknowledged, however the same is seen with industry and investors. Some companies and investors are well-resourced, experienced in engaging with universities, fair in their terms and flexible in their dealings. Government and business leaders should encourage organisations who are experienced at working with universities to act as exemplars and share best practice with other industry or investor colleagues.
9.2 Organisation such as PraxisUnico and AURIL should receive support (financial and expertise) from government and business to ensure that the professionalism of the technology transfer sector continues to grow and more mechanism for dialogue between the sector and the business & investors community occurs. It is no longer acceptable for commentators to stand on the sidelines and criticise. They need to engage and work with the universities and TTOs to lift the already high standards of the UK in this area to become clear world leaders in knowledge exchange.
9.3 As stated in the recent McMillan review, despite much searching and many suggestions “there are no one-size-fits all policies that work for every technology, university or place” (HEFCE, 2016, p. 31) Governments and commentators need to recognise that these models can never work across the diversity of cultures, approaches and types of technology seen on UK universities. However, at the same time universities should revisit their policies and check whether they are flexible enough for the self-same diversity. More flexibility around equity in start-ups, student IP and recognising that not all founders are the same and ecosystems are evolving should be encouraged. Of course, with more flexibility comes less standardisation and the possibility of greater confusion, hence the right balance for each university must be found (and not imposed upon it). The recent announcement by HEFCE (as part of the next HEIF round) that it will expect each institution to set its own knowledge transfer strategy, but will then be monitored and held to account to it is a step in the right direction.
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