Select Committee on Science and Technology Minutes of Evidence


Examination of Witnesses (Questions 474-479)

PROFESSOR PETE BORRIELLO, DR JULIE LOGAN AND DR STEPHEN REEDERS

TUESDAY 4 MARCH 2003

Chairman

  474. Good morning, lady and gentlemen. Thank you very much indeed for coming along. Could you identify yourselves for the record and after that, if there is any opening comment or statement you would like to make, either collectively or individually, now is the time to do it.

  (Dr Reeders) I am Stephen Reeders. I am the Chief Executive of MVM, which is a venture capital firm dedicated to investing in new life science companies.
  (Professor Borriello) Pete Borriello, Director of the Central Public Health Laboratory, which is the national centre for reference and specialist microbiology.
  (Dr Logan) I am Julie Logan. I am Director of SIMFONEC. We are a science enterprise centre. We encourage an entrepreneurship culture in four universities—The Royal Veterinary College, King's, Queen Mary's and City University, and we work with clinicians and researchers to spin out their commercial research.

  475. Is there any opening comment any of you wish to make?
  (Professor Borriello) I have one. You have an excellent set of questions and some of them are very difficult. I hope we can be of value.

  476. Can you describe how new technologies, particularly those relevant to communicable disease surveillance and control, are brought to the market place? Where and how are the key decisions made and where do you consider the weaknesses lie? It might be helpful in answering this question if you could give us some examples of the new technologies that are being brought forward and that you see will be in the market place within a few months or a few years.
  (Dr Reeders) The paradigm for development of new technologies starts with innovation in universities principally and research institutes. Then there is a phase where someone or other tries to translate those inventions to a model or an entity that can take them forward with capital in order to develop them. Typically a company will take, in order to develop a therapeutic product, at least £100 million. In the case of a diagnostic it is typically between £5 million and £10 million. The universities initiate the process of development of technology and then there is a gap where it is not clear who takes over and that gap is from the point where the scientist has a very good idea to the point where third party venture capital takes over and invests in that idea. I would say that one problem to identify at the outset is that gap, which people call the development gap, and it is the gap between having a brilliant pure research idea and understanding the potential applications and then developing those applications.
  (Dr Logan) I could come in there and say that that is a real issue for the universities. We have many researchers who come forward and as a result of their research they come across a by-product which could have a very good commercial application. We can get funding for the pure research and later on we can get funding to do a prototype, but the funding for some of the basic testing is missing and we find that our clinicians, our researchers, are constantly frustrated by this. There are a number of universities who have what we call pre-seedcorn funds. This money can be used for that research phase and this money is absolutely essential but unfortunately we do not have joined-up provision across the country, so at the moment we have many ideas which are on hold because we just cannot fund that gap.
  (Professor Borriello) I agree with much of what has been said but I think that is only one side. Certainly there is a lot of development within company which is independent of independent research in universities. That tends to be much more market focused because they are much more market aware. One of the gaps in academia is ensuring that they become more market aware. That is also true of a number of companies, although they tend to have greater interaction with their potential customer base. In crude terms there is the adage that there may be a gap in the market but there is not always a market in the gap. Certainly in academia people fail to see that. For example, there is a diphtheria test kit that we have developed which would be exceptionally useful for very rapidly detecting diphtheria toxin which would have great applicability, but the market is small so it is impossible to get a company to develop it. Developing those technologies in-house becomes increasingly difficult because of the proper requirements to comply with the increase in new stringent regulations, including what now will be the European In-Vitro Diagnostics Directive. Some of these systems put in place to ensure proper diagnostics also can have an adverse effect on making sure that what we call orphan diagnostics never get into the market place.

  477. The gap that you identify is real. I know from personal experience (although it may have changed now) that there was a time when commercial companies wished to have something that would be in the market place within months where it needed several years of development and the meeting of the two, the research worker in the university lab and the developer, never happened. It was quite different in the United States where venture capital people were willing to put money into the basic development. Is there a change now from that situation that I experienced, say, ten to 15 years ago?
  (Dr Reeders) There has been a dramatic improvement in the UK. When I moved back from the United States in 1997, if you went to talk to scientists at Cambridge, for example, about the commercialisation of products, they felt it was slightly distasteful and they were looking over their shoulders to see who might criticise them for deviating from their research role. Now it is much improved but you still have a gap. If you go to the University of California, San Diego, for example, every PhD student has a company that he wants to put together. If you go to Cambridge now most of the PhD students have seen other people that have put companies together but they are still not thinking about applying their technology, so the cultural change is such that we have done half a circle towards the US model, and we are way ahead of Germany, France, every other European country, but we are still not at the US model where people are already, when they are making an invention, saying, "What could I do with this? What is the application of the discovery that I have just made?" I just think time will be needed plus a stimulus. It is difficult to know what the best stimulus is but some stimulus is needed that shows them that there is a pathway they can go along between where they are and where they want to be and that other people have gone along that pathway in their institutions.

Lord Oxburgh

  478. Picking up from the most recent comment that you make on comparison with the US, where would this transitional funding come from in the US?
  (Dr Reeders) The venture capital community has been much more active in the US and the scientists are much more aggressive. A typical discussion in the US, an anecdotal one, would be that you would go to a young scientist of 23 and his brother works for Goldman Sachs, his sister-in-law works for Pfizer and he has talked to the people at Pfizer and he has talked to the people at Goldman Sachs and he has written a business plan and he shovels it in front of you as a venture capitalist. It is the entrepreneurial culture which partly bridges the gap in the US. The US does not have any University Challenge funds. It does, however, have two major initiatives which I think should be considered. One is the Small Business Innovation Research Grants (SBIR) which I think have been incredibly effective. The quality of those grant applications is now on a par with the best research done in the best institutions. The other major initiative which is worth looking at is the Small Business Investment Company where the government provides guaranteed leverage to venture capital firms to start up new companies. Right now, for example, a venture capital firm could start up a new fund and for every dollar it commits the government will provide two dollars at a low interest rate, which is the ten-year T-bond rate plus about half a per cent. That is an incredible incentive. If you are investing and for every dollar you spend you get two dollars from somebody else but you are obliged to spend it in small entities, it really provides the driver for that activity. The US has a much more aggressive venture capital market. We are in good shape in the UK; we are certainly way ahead of the rest of the world. We are halfway across the Atlantic conceptually in terms of the drive to start new entities.

  479. We were talking to venture capitalists in southern California late last year and they felt there was no better place than the UK for entrepreneurship at the moment in terms of the broad financial environment.
  (Dr Reeders) The UK is in a very good position, certainly in the life sciences. Innovation in the life sciences has been really outstanding in the UK. The double helix was discovered in the UK, monoclonal antibodies, the first crystallisation of insulin and haemoglobin, how to sequence DNA, and so on; these inventions were made in the UK, and so, weight for weight, we have had an extraordinary record. We do have the innovation. One of the issues that we face is management. We do not have the successful serial manager. The policy in our firm is to recruit British people back from the US. We maintain a database of British people in the US and we suck them back. We try and find them, go and meet them and then pull them back.


 
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