When Hagan Bayley, a professor of chemical biology, returned to Oxford from the US in 2003, he had no particular interest in starting a business. He always knew that his research into protein pores, tiny naturally occurring holes that can be used to identify molecules that pass through them, could have commercial applications. But he was interested in pure research, not in marketing and balance sheets.
“I came to Oxford to do research, not set up companies. I am a scientist and my skills lie in the laboratory, not the boardroom,” he says.
Nonetheless, today he is the founder and a director of Oxford Nanolabs, a nanobiotechnology diagnostic company that is developing small hand-held devices based on his discoveries, which he hopes will be able to diagnose a range of diseases cheaply and instantly.
The growing presence on campuses of companies offering financial and managerial assistance to academics with good ideas is helping to transform universities’ approach to technology transfer. Ten of the UK’s leading research institutions have struck deals with a handful of companies that take an equity share in any company or licensing deal in return for their support.
The model is unique to Britain and has produced a flow of spinouts and stockmarket listings for companies that began in state-funded university laboratories. Yet it is not without its critics, who argue that institutions are not getting a good deal.
Prof Bayley is not one of them. “I decided 10 per cent of my time was as much as I was willing to give the company but having Isis, the IP Group and Spike made everything very easy.”
Isis Innovation is the name of the university department that helps academics protect and manage their intellectual property (IP), the IP Group is a private company that helps to organise early stage finance for spinout companies and licensing deals, and Spike Willcocks is a former chemistry student at Oxford who graduated in 2001 and opted for a life in the City of London.
Now he is business development director of Nanolabs and leads a group of technicians in rented lab space just over the road from Prof Bayley’s laboratory. His team is working to overcome the challenges of turning Prof Bayley’s pure research into a usable device that could interest environmental and security groups as well as medical companies.
The IP Group is not just partly responsible for Prof Bayley having his own company; it also helped build the gleaming new laboratory that he works in. The Chemistry Research Laboratory, opened by the Queen in 2004, contrasts starkly with the “dreadful Victorian conditions” some of Oxford’s scientists still work in and Prof Bayley says it was one of the factors that tempted him to return. The IP Group, which started life as an arm of investment bank Beeson Gregory and was until quite recently called IP2IPO, forged a ground-breaking deal with Oxford’s chemistry lab in 2000. In exchange for £20m ($38m), the bank got a 50 per cent stake of the university’s share in any company spun out by the lab for the following 15 years.
The deal was regarded as exotic at the time, but now the IP Group has struck similar deals giving them exclusive access to IP at seven other institutions and has a pipeline of licensing deals and spinout companies.
Oxford observers say the mingling of business and academia has helped change the culture of a university that has not always been at ease with commerce. Dons increasingly see setting up companies as a normal part of academic life and some “serial entrepreneurs” have begun to emerge.
But are such deals the answer to the problem of top-notch British discoveries and research lying unused on library shelves? For too long, critics have argued, UK universities have not been entrepreneurial enough.
As a 2003 report into university and business links by Richard Lambert, former editor of the Financial Times, pointed out, the UK’s citation rate in academic papers is 53 per cent higher per capita than Germany’s; yet that country makes 230 per cent more patent applications per capita than the UK.
Is the IP Group’s strategy – which is unheard of in the rest of the world – an answer to another problem that is often blamed for hindering technology commercialisation in the UK: investors’ apparent wariness of funding spinouts?
Whereas high net-worth individuals flock to US campuses, falling over each other to invest in risky start-ups, the “angel investor” scene in the UK is a lot less vibrant. Gordon Brown, the UK chancellor of the exchequer, has tried to redress this by pumping money into basic research, and earmarking “third stream” funding to help universities set up technology transfer offices that can protect and manage intellectual property.
The IP Group has also been paid the ultimate compliment of being copied by other companies that are scrambling to sign up the research universities that still have IP up for grabs.
But not everyone is impressed. One stalwart of the UK technology transfer scene, who did not want to be named, said universities were allowing themselves to be “ripped off” by signing away years’ worth of IP for relatively small amounts.
Certainly, the IP Group does not offer £20m in upfront cash these days. In 2005 it gained the right of first refusal to invest in IP created at the University of Bristol for the next 25 years in return for an initial investment of £5m. The cash does not go to the university but into the spinout companies, in which the IP Group gains an equity stake.
Imperial College London, one of Europe’s leading research universities, has rejected the IP Group model, arguing that it dilutes the university’s stake in its own IP. Imperial Innovations, the company handling the university’s technology transfer activities, has used a private placement and an initial public offering to raise £36m to invest in spinouts and technology. The university holds an equity stake in Imperial Innovations worth around £100m.
Geoffrey Thompson, chief executive of Braveheart Ventures, a company that has framework deals with five Scottish universities, believes Imperial’s move will kybosh further deals which leave universities with a tiny equity share.
“What they have done at Imperial is very, very clever. They have realised that they can get a lot more bang for their buck by aggregating their IP into a commercial vehicle. By not going down the IP Group route they will have a bigger share of a bigger pot.”
Mr Thompson estimates that there are around 20 UK universities that could opt for the Imperial model if they wanted. But even that would not please some academics. Ross Anderson, a professor at the Cambridge computer science department and a serial entrepreneur himself, is scathing about the usefulness of “university bureaucrats” and outside companies.
“A third of my colleagues in the department have become entrepreneurs and a whole lot of them have made money and now live in big houses in the country. That’s because the average faculty member has significantly more business acumen than these financiers.
“My advice to academics if they get approached by some City spiv is to say, ‘Son, there’s the door.’ ”
Angle exports IP deals to US
Is a British approach to commercialising academic ideas about to be exported to the rest of the world?
Traditionally, the UK higher education sector has looked outwards, mostly to the US, for tips on how to turn high-tech research into lucrative enterprises.
But one technology commercialisation company with links on both sides of the Atlantic says it is keen to bring to the US the trend of universities selling intellectual property rights to an independently owned third party in return for guaranteed funding for spinout companies.
Angle, a company that has done one-off deals with research institutions in both the US and the UK, struck its first such deal with Reading University, in the south of England.
For the next 20 years it will be able to take a 60 per cent equity stake in spinouts it chooses to invest in, and 15 per cent from those that it does not invest in.
Andrew Newland, Angle chief executive, said the deal was partly “defensive” as other companies in the UK are circling British universities. But he also revealed that he is negotiating similar arrangements with some US universities that get overlooked by venture capitalists.
“They are not places like MIT or Harvard that do lots of technology transfer and lots of deals, but those that are slightly off the beaten track of California and the east coast.”
A formula for commercial success
• Colin Besant is an academic entrepreneur who likes to get his hands dirty with company affairs. An earlier career in industry left the professor at Imperial College London with a taste for business. He also finds it “wonderfully exciting and rewarding”, which compensates for the fact that he has not, he claims, made “huge sums yet”.
The science underlying his company, Turbo Power Systems, emerged from his work leading a multi-disciplinary team of mechanical engineers at Imperial. It led to the development of a compact electricity generator with applications ranging from micro-generation for houses to air-conditioning for London Underground trains, one of the company’s current projects.
After a long career in business and academia he is excited that British universities are taking the commercialisation of technology seriously: “When research projects used to come to an end, the team would just split up and all the IP would just be left to rot.”
• Oxford Asymmetry, the company founded by Stephen Davies, was sold for £316m ($602m) in 2000. An Oxford University lifer, he stayed on after his undergraduate studies to become professor of chemistry in 1996.
He set up the company as the sole investor without any help from the university, describing Isis Innovation, Oxford’s technology transfer company, as “not attractive to me” in the 1980s.
The company created a library of new chemical compounds to be used for drug discovery testing. It grew over time, reinvesting the cash it generated.
Prof Davies has drawn heavily on his mantra – “my businesses don’t burn cash” – when setting up his next business, Vastox, a drug discovery platform that is similar to Oxford Asymmetry but exploits research in genetics as well as chemistry.
Vastox does not use any intellectual property developed within the university but he is happy for Oxford to take 10 per cent of the equity.
• David Haddleton’s research group at Warwick University works on novel ways to synthesise polymers.
His research laid the foundations for the setting up in October 2001 of Warwick Effects Polymers, which after attracting outside investment moved to a purpose-built facility on the University’s science park.
Its portfolio of patents cover a broad range of catalysts for use in creating polymers. The company says these could have applications in the healthcare, pharmaceutical, personal care and microelectronics sectors.
It is looking to license its technology around the world, as well as doing contract research.
• Lifestyle Choices was created just last year using the know-how of Bill Ledger, professor of obstetrics and gynaecology at the University of Sheffield.
The company offers a range of products in the female fertility and menopause market, and in January it launched its first product. Called Plan Ahead, it gives a predictive assessment of the number of eggs in a woman’s ovaries.
To get his venture off the ground, Prof Ledger worked with Biofusion, an Aim-listed company that has an exclusive 10-year agreement with the University of Sheffield to commercialise its medical intellectual property.