Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 1-19)

MR ROBIN YOUNG, DR JOHN TAYLOR OBE, PROFESSOR SIR GEORGE RADDA CBE, PROFESSOR JULIA GOODFELLOW CBE, AND PROFESSOR JOHN LAWTON CBE

MONDAY 11 MARCH 2002

Chairman

  1. Good afternoon, welcome to the Committee of Public Accounts. Today we are discussing the commercialisation of public sector science. We are delighted to have Mr Robin Young, the Accounting Officer for the Department of Trade and Industry. Would you like to introduce your colleagues?

  (Mr Young) Directly on my right I have John Taylor, who is the Director General of the Research Council within OST, which is within the DTI. On his right Professor George Radda, Chief Executive of the Medical Research Council and on my immediate left Professor Julia Goodfellow, Chief Executive of the Biotechnology and Biological Sciences Research Council and Professor John Lawton Chief Executive of the Natural Environment Research Council, these three research councils being the ones looked at in this Report.

  2. Thank you very much. Perhaps I can introduce the questioning on behalf of my colleagues. Could you please turn to page 15 and look at paragraph 1.7. There you have some pretty general aims, "The government is keen to encourage them" that is the councils "in cooperation with the private sector", et cetera, et cetera. Very general objectives, what does it actually mean? If you read 1.7 an objective observer may come away with the conclusion that you can do whatever you like and it is very difficult to measure what you have achieved. Is that an unfair criticism?
  (Mr Young) I think it is a bit unfair, Chairman, and I do not think it is one that the Report bears out. What the Report has done is that it has described the Baker Report's recommendations to government on carrying forward the commercialisation effort. It then goes on to point out mainly how well the research councils are doing in pushing forward that agenda. It then looks at the various forms of commercialisation. If I can draw your attention to the top of page 15, the very page you are on, to Figure 5, where it points out that commercialisation reveals itself in a variety of outputs, none of which are easily susceptible to magic wands or simple targetary. What we are doing here in discussions—and we will, no doubt, go on to describe to you during this session—with the research councils is describing and working-up with them key indicators of success in driving forward commercialisation. There is no simple wand because the six things listed under Figure 5 are very different and they are applied differently in the different research councils because of the different sectors which those councils deal with. We have a system of output indicators, annual discussions, annual reports, indicators of progress and we are looking at various ways of charting that progress. All in all, if I can refer you back to page 8, paragraph 24, what the Report says is, "The Research Establishments we studied as a group, have developed the full range of commercialisation opportunities, from free dissemination of information to venture capital financed spin out companies". That is more the picture, rather than the way you described it.

  3. Let us try and cut through this, we are talking here about outputs and outcomes. The output is transferred intellectual property to the private sector companies, the outcome is what they make of it. Where and how is this being measured? How is your success being measured in achieving what is essentially the Government aim in this area?
  (Mr Young) Let me start on that and then my colleagues can help me as they think fit, if that is allowed. The key indicators of progress, which we are discussing with each research council as part of our annual report discussions and operating plan discussions include the following: we look at the level of income; we look at the value of the contracts and the collaborations which they have with the private sector and others; we look at the total number of their patents; we look at the number of their new patents in the year; we look at the number of licensing agreements they have achieved; the number of start-up or spin off companies they achieve and the number of employees in those start-up companies. There are a whole range of things, not one straightforward measure, a whole range of measures which we think are necessary, and the Report gives credit to that, to trace all of the research commercialisation outputs listed in Figure 5 on page 15.

  4. If you can now turn to page 5, please, and if you look at paragraph 12 you will see there that, "The Office of Science and Technology is revising the performance indicators that apply to Research Councils to reflect this high level target". Can you tell us a bit about how these indicators are being benchmarked against other research councils and the university sector? Would you like to comment on the anecdotal feeling that the university sector may be better at doing this than the councils, or do you deny that?
  (Dr Taylor) I begin by saying that I think that the Report shows clearly that over the last three years, or so, we have been in a very positive and fast-changing climate. Policy has been coming from the top which says commercialisation, and so on, is important. A lot of the things that have been in place and picked up in the Report show that basically we are moving very positively in the right direction. It is very important to register that, and in this activity one size does not fit all. What is appropriate for medical research council institutes might be quite different from what is appropriate for other institutes. They are at different stages and different market places with different kinds of science. What we are doing at the moment is revising the way in which we try and measure and assess the kind of activities that are going on, knowing that they are all moving in a very positive direction. That is a process that we will be pulling together, now that the Quinquennial Review has been completed, as we look across the councils and their institutes to try and get a feel for the set of activities that are in place. This is very much an opportunistic activity and it is driven by our science research programme and then a very good process for spotting first class opportunities for commercialisation that come from that.

  5. Can I refer you, Mr Young, to page 2, paragraph 4, please. This is what we all know about, that the United Kingdom has a strong record of innovation but it is widely considered to be less successful in capturing the economic benefits of scientific advances. That is very true and we all want to encourage commercialisation, which we are talking about today. How can you ensure that the public service priorities of these councils are not distorted? We do not want a situation where we are affecting the ability of these councils to do blue sky research because they are plodding after some commercial opportunity?
  (Mr Young) I could not agree more, which is why the government position is that we only want to encourage commercialisation, broadly speaking, as it says in paragraph 4, as long as that does not compromise the research establishments core scientific role. I should say that in most cases commercialisation very much supports and complements, I would argue, the core scientific roles of these establishments and several people on this table will confirm that. In all of the discussions which John Taylor, the Director General of the Research Council, had with each research council, a key component of that discussion is how they are hitting their core mission, how they are achieving their core mission objective and how commercialisation is being used to support that and not detract from it.

  6. Can I refer you to page 22, please, paragraph 2.18, there is rather a noble statement here, "Scientists responding to our survey said that they were not primarily motivated by the potential to make money for themselves". I wanted to pursue this, and this might interest the Committee as well. There are some complaints from dons, particularly in the arts sector—these may be very unfair complaints but I have to put them to you—there are some scientists in the more biology sectors than scientific sectors who are quite good at setting up research projects, getting into intellectual property, transferring them into private companies in which they may have some stake and thereby deriving some personal benefit which may not be in their personal interest. Can you comment on that? Is that an unfair criticism?
  (Mr Young) The position started with the recommendations of the Baker Report, which are summarised on page 16, which said that they were clear that the opportunities for commercialisation were held back by perceived bias to commercial exploitation. In other words, there are opportunities going missing because there were no opportunities for individual scientists to benefit. That said, the Government only did something about that, namely by changing the Civil Service Code and issuing other guidance to councils on the basis that such exploitation by individual scientists is carefully managed and controlled. If I may, I will ask any Chief Executives here to give examples of that. The government response to the Baker Report recommendations, was quite clear that a key barrier to successful commercialisation, the subject of this Report, was rules preventing individual scientists from benefiting.

  7. This never happens, a scientist does not transfer his intellectual property, which he developed with the help of public money, by some sleight of hand into a private company in which he has some stake, it has never happened?
  (Mr Young) "Never" is a difficult word to use in this Committee. Our guidance is quite explicit on how to manage the risk of that happening. Equally, we did deliberately change the Civil Service Code to allow some of that to happen because we were told some exploitation—

  8. That seems to be a rather contradictory answer, other colleagues can come in on that if they want to. Can I ask all of your colleague to now turn to page 21, paragraph 2.12. "The senior managers of the Research Establishments covered in this study also recognise that commercialisation should form part of their personal objectives". Can I ask your colleagues if their personal remuneration contains a variable element linked to successful commercialisation by their research establishments?
  (Professor Sir George Radda) The answer is no. Our personal remuneration is not linked to any commercial success in my organisation. Incidentally, our commercial exploitation is centrally managed rather than by each institution, which is different from the other research councils, because we have a different relationship between our institute units and the MRC Centre.

  9. Is anybody's remuneration dependent on successful commercialisation performance?
  (Professor Lawton) If I can take the Natural Environment Research Council, Chairman, the directors of all of the NERC establishments, the British Geological Survey, and so on, have the implementation of the recommendations of the Baker Report in their annual performance objectives, ie one of their performance objectives is to implement the Baker Report. That is also in my objectives. As part of the overall assessment of their performance over the year that will be one of the issues that will be taken into account.

  10. If they successfully commercialise they get paid more, they get some sort of bonus?
  (Professor Lawton) They are on performance-related bonuses across a whole series of activities, and that will be one of the activities that will be taken into account by the Remunerations Committee in assessing their annual performance bonus, yes.

  11. How are you and your colleagues ensuring the integrity of the system so that the public service objectives of your council is not distorted by the desire of your staff to exploit commercial opportunities and, therefore, to be paid more? How do you insure the integrity of your council against this?
  (Dr Taylor) Let me summarise for you the top level sets of checks and balances from OST to the research councils. First of all, each council is required to produce a five-year strategy, a one-year operating plan and a one year annual report and that contains a set of objectives, including activities in the area of commercialisation, as called for in this Report. Their personal objectives are set by me and they have performance-related bonuses which are set by a Remuneration Committee, involving me and some of the research council members, reflecting how well they have implemented those objectives. In addition each research council has an Audit Committee which is responsible for overseeing the processes and the outcomes of what it is doing. Between those three sets of things we seek to encourage a reasonable commercialisation programme, very much along the lines recognised in the Report, but keeping it under the right set of checks and balances. That is one of the reasons why we steer away at the top level from very specific numeric targets which can, indeed, affect the wrong kind of behaviour, a curious kind of behaviour and why the whole question of metrics and measures in this area needs considerable care.

  12. Other colleagues can deal with that further. Can I approach this question from another direction and refer you to paragraph 2.17. "Our survey indicated that this is frequently not done and that scientists believe that their career paths discourages involvement in commercialisation activity". How big a deterrent is this? Scientists believe that how they get on is doing original research, getting academic papers published and if they are asked to do commercial stuff they are simply not progressing in their career. Is that a fair comment?
  (Professor Goodfellow) When we review our institutes—and you have to remember that BBSRC has eight independent institutes—we review these every four years in detail. They have annual reviews throughout that as well, and we look at knowledge transfer as one of the things the staff are doing and we also look at the quality of the science and how it is working as an institute, is it fulfilling the strategic aims. It is one of a number of indicators that we are looking at.
  (Dr Taylor) The population of scientists in any laboratory is not uniform. There are various different mixes of styles of people involved in any sizable research group. Again, one size does not fit all in this case.

  13. Can I ask a question based on paragraph 1.9 on page 15 now. I think you have there your three research councils receiving a total of £17 million from commercialisation. What sort of figure would satisfy you as having met your objectives? What are you aiming at?
  (Mr Young) We have deliberately and explicitly offered no such figure. What we are doing is setting each chief executive a target and constantly increasing and learning from the commercialisation opportunities, bearing in mind warnings that you yourself set us not to detract from the core objective of the core scientific benefit, but equally being keen within that context to maximise opportunities. Each research council is very different. The figures in 1.9 make clear both the different history and also the different opportunities in different areas. We are working away year-on-year looking at the amount of income each earns and we will be tracking in a previous answer I listed, I will not repeat it again, about seven things which we are tracking to indicate progress on commercialisation. Income is but one thing, numbers of employees in start-up companies is as important an indicator, some would say, of commercialisation progress as income. Income is one important thing we are tracking, but there are lots of others to show to what extent people are doing the commercialisation things listed in Figure 5 on page 15.

Mr Williams

  14. In terms of the intellectual seed corn, how far are we losing the battle before we get in there and start fighting? How far are the Americans able to poach our best research students before they even reach the stage where they are possibly going to be attracted by anything that you are offering?
  (Mr Young) I will make a general response and ask one of my colleagues to fill it in. You are quite right, Mr Williams, intellectual property and the control thereof is absolutely key to this and is right at the forefront of our concerns. For what it is worth, we issued, via the Patent Office, guidance in December 2001 as to how to balance this very difficult scale.

  15. You have not answered the question I asked, which is to you because you are in charge of education, which is, how far are we losing the battle before the education stage, before we reach the productive research stage? How far are the Americans pinching our best young scientists? MIT and Harvard offer very generous inducements to promising people from all over the world. Is there any evidence we are losing any in this way?
  (Mr Young) I am so sorry, I missed the point that it was education you were talking about. I do not think there is any evidence of that.
  (Dr Taylor) I think what we have seen over the last few years is an intensification of the battle to get people in various leading economies, the Germans, the Americans, and so on, and that is a battle in which we have to be continually be engaged with schemes like the Wolfson Foundation and Royal Society Scheme, part funded by OST, which we launched last year, to actively top-up the remuneration and the packages that we could offer to keep people who are in the United States or anywhere else and to bring them back. I will ask George Radda to tell you about some of the successful refreshments he has managed.

  16. I went to MIT and Harvard about a year ago and I was very impressed by the packages they could cobble together if they really wanted somebody. Are we able to match them?
  (Professor Sir George Radda) Could I just say that, for example, in an organisation like the laboratory of molecular biology in Cambridge a large percentage, I do not know the exact figure, but it is more than half, of the post-doctorate fellows are non-United Kingdom scientists linked here, rather than going the other way round. We still have no difficulties in filling the studentships with outstanding graduates in our institutes and units. Recently we have been successful in recruiting people, both at junior and senior level, back to this country, either expatriate or to this country from the United States and Germany. We are still competitive, partly in terms of the commercialisation activities, the incentives we can offer, which are also helpful. I happen to have the figures that the MIT invest in research which is something like £515 million per annum compared to our investment which is £180 million, and they will have an income from commercialisation of 4.4 per cent against the MRC income of 9.9 per cent. Actually we compare very favourably on a number of counts with major institutions like MIT.
  (Dr Taylor) The other thing that happened very recently is the change made in 2001 to the ability for foreign PhD students to get work permits if it turns out there are commercialisation prospects in the work that they are doing, I think that is a very important step forward to help retain the very best of overseas talent to continue working on projects in England.

  17. That does not preclude the possibility that we are losing our top quality people to America and keeping not such high quality people from other countries. That would equally explain the situation you just described. You can put in a note if you wish to, it would be very welcome. How far does the American practice of patenting everything that moves inhibit what we are able to do in this country? I know the two patenting systems are very different. I know the Americans are now, at last, coming into line with the rest of the world and Europe, in particular. Is there a threat to us in their approach to patenting?
  (Professor Lawton) I will pick this up as the research council with the least number of patents, because the nature of the environmental work we do does not lend itself as much as it might in the medical area. The Report, of course, does not discuss these issues, Mr Chairman, so the arguments are not necessarily pertinent to the discussions that are in the Report.

  18. It does refer to intellectual property as part of the process of preserving intellectual property. There is a fierce difference between us and the Americans, where they are quite parasitic in their approach to it, so we cannot brush it aside.
  (Professor Lawton) Where the opportunities exist we do enter into patents quite aggressively within the United Kingdom and within Europe. There are others ways of protecting intellectual property apart from patents.

  19. When you have something that is worth developing and you see how far have we developed it. There is considerable reference here to the venture capital involvement. This, again, is something, as you would anticipate, the Americans have been way ahead of us in and how far are we now able at this stage to match them in the appropriateness and the timeliness and the scale of the intervention by venture capital support?
  (Professor Sir George Radda) Could I say that several years ago we recognised the difficulties of getting some of the United Kingdom venture capital people to invest in start-up companies in biotechnology, particularly on the biomedical side. This is one of the reasons why we have set up our own venture capital company entirely from private funds, initially £40 million a few years ago and we are now repeating that and have already collected £41 million, and we expect to have more, for what is called MVM Limited.[1] This is a wholly owned venture capital company that the MRC set up. This has been extremely successful in providing venture capital and, more importantly, management advice in setting up enough companies. In relation to the US threat that you implied before I think it is important to recognise that the threat is in the volume of research that is being carried out in the US, not in the ease or difficulty of getting patents.



1   Note by Witness: MVM Limited acts as the general partner to the UK Medical Ventures Fund (the first fund) and the MVM International Life Sciences Fund II (the second fund). Back


 
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