From labs to riches

Securing funding, battling for patents, licensing technology – getting commercial success from basic biological research is never easy. However, says Maher Khaled, there a few things that can help you on your way…. 

COMMERCIALISING early stage technologies involves a myriad of technical, legal and commercial challenges. The route to market for every technology is different as it is dependent upon the particular technology, institutions, resources and people involved. However, in practice a number of principal themes arise across all fields of biological research.

Inventions are derived from biological research when an advance has a practical use beyond scientific understanding or knowledge. Although credit for scientific discoveries is founded upon authorship in journals or conference presentations, this does not prevent others from making use of the disclosed techniques. The unfortunate reality is that, when developing biomedical technologies, commercial success is dependent upon obtaining a monopoly (the ability to exclude others) over the use, or ability to make, copy or sell the finished product. This is done by protecting the invention through intellectual property (IP) rights which allows industry to reap a return on the investment made in development.

"determining whether the results of biological research provide a commercial opportunity will depend largely on intuition and a bit of imagination"

The majority of technologies in the biomedical sphere are protected by patents, more so than other sectors of industry. Lower cost alternatives, such as designs or copyright, are less often an appropriate avenue of capturing a biomedical advance and hence IP protection for biological inventions can be a significant financial burden on new commercial enterprises. The decision to patent a technology is influenced by its capacity to fulfil the legal requirements, but the ability to do so does not suggest that the decision to incur the expense and effort is appropriate. Although basic research can generate a vast array of intellectual property, there is little benefit in going to the expense of preparing and filing the appropriate legal documentation unless there is an existing or predictable future market. 

At first glance, determining whether the results of biological research provide a commercial opportunity will depend largely on intuition and a bit of imagination. However, realistically gauging the impact of a new technology and its niche in the marketplace does require considered thought. The principal question to ask is effectively whether or not there would be customers, be they patients, clinicians or fellow researchers, willing to pay for what you have developed. Is the technology providing something that someone will find to be useful?

If the new technology is a solution for a problem that has already been addressed, the question is rephrased to determine whether the technology is sufficiently better or cheaper than what is currently available to warrant customers trying it out? For instance, developing a new technique for screening potential pharmaceutical compounds, at twice the speed but at four times the cost, typically won’t be a viable opportunity. In this simple example (ignoring labour, space etc), a lab could purchase two machines and provide results (en mass) at the same speed but half the cost of the new technology. The exception in these instances is when the increase in speed or efficacy provides value that had not previously existed. Therapeutics are an obvious example of deriving value from an invention when they provide enhanced patient health. Another is when the ability to observe reactions at twice the resolution provides new insights into disease etiology. In these cases the additional expense over existing solutions may be of minimal importance when compared to the value they deliver. The question to ask in these instances is whether or not your anticipated customer would be willing and able to pay for the value you are providing? As many readers will be well aware, single pieces of equipment used in biological research can cost hundreds of thousands of pounds, but these are utterly essential to continue pushing back the frontiers of science.

For a technology to appear as a viable business opportunity it will generally need to be able to stand on its own as a product or service or otherwise be complementary to one already in existence. A robust, if not complete package, is highly desirable to attract the interest of licensees or investors. This is because an established company will often have to invest significant effort in calibrating their practices when accommodating a new technology in their product pipeline. If they are to do so, then they will want a degree of comfort that the basic research issues have been resolved or that an improvement can be integrated with the existing technology.

Many industrial sectors that incorporate biological research, such as the pharmaceutical industry, have adapted to the practice of licensing in technology. The nature of pharmaceutical development allows well established companies to take drug candidates discovered externally through their developmental programs. In fact, many firms have been established principally to exploit this business model as they scout internationally for promising early stage compounds.

The route to market for every technology is different, but if it is found the rewards can be great

Less adaptive sectors or industries can be more resistant to licensing technology. This is typically because their existing development programs are understood and championed by internal staff. This will encourage management to take a natural preference to projects in which the risks are better understood and on the whole likely to be lower, despite the potential gains of an innovative technology. This attitude is colloquially known as the ‘not invented here syndrome’. For this reason, the threshold to file a patent is typically much higher for research institutes and universities than it would be in industry. This is because firms may just be seeking to enhance their IP position or extend patent life through incremental improvements or alternative applications - not a viable activity for public institutions. Therefore, when commercialising basic biological research, consideration should be given as to whether the costs of IP protection as well as the time and effort required to commercialise an invention are warranted. This is most relevant if the technology is unlikely to attract the attention of industry despite being valid in itself. For this reason proof of concept funds have been established by many universities or through government or regional initiatives to encourage prototype development and market research. Injecting of a small degree of funding to advance a technology can significantly help in demonstrating to industry how it may function in practice.

Many companies are hesitant to internalise or ‘adopt’ particularly radical technologies because of the costs in equipment and time involved. Even when the technology appears to be exciting and viable, sometimes a licensee cannot be found. In these instances the inventors are rarely provided with an alternative beyond forming a company themselves. Commercialising any technology generally requires a continuing investment of the inventor’s time, potentially distracting them from basic research activities. Also, starting a company can be an onerous task as it introduces a great deal of additional concerns, such as financing and personnel, to the challenges presented by technological development.

When an industry partner or licensee cannot be found for a technology, the inventors may be faced with the proposition of ‘do it yourself’ commercialisation. Based upon industry feedback, the inventors and their supporting commercialisation personnel may decide that they still believe the value the technology can provide will justify the effort. In some cases, basic research can result in radical innovations that have the capacity to serve as the basis for multiple products and innovations. These are the prime source of successful spin-out companies as many technological entrepreneurs suggest that it can be quite risky to rely on a single product proposition to attract investment and successfully reach market. In these instances the only people with the appropriate skills to develop the technology may in fact be the inventors themselves.

Nevertheless, almost all spinouts will require input from their inventors. Therefore it is also important to consider the location of the spin-out when assessing the viability of forming a new venture. New firms will require labs, funding, service providers and a ready supply of staff and management along with the input of the inventors. This is why the biotechnology industry has predominantly developed in clusters such as Boston’s Route 128, Silicon Valley and Cambridge.

These clusters also attract technological investors and venture capitalists - however new ventures will typically have to demonstrate a degree of progression to attract their attention. The supply of early stage funding to progress new ideas, is one of the primary limitations for new venture formation. Attracting the first round of funding (often referred to as seed funding) can be quite difficult when merely presenting a business idea with little evidence of the invention functioning in practice. In response, the government has sponsored seed funds in a number of universities and institutes to allow these companies to get off the ground and enhance their survival rate. Universities do not necessarily view early stage investment as a direct profit making venture and as a result the supply of this high risk funding is limited. Rather it is a means of taking technologies to market for the value they provide. If this is successful however, revenue streams through licensing and equity can potentially make seed funding profitable on a whole, through these and other indirect routes.

Shane and Stuart (2002)  found that companies founded on university technology survive longer and are more likely to reach initial public offering (IPO) than other industrial spin-offs. Because some technologies can only be transferred from the lab bench to the community through company formation, a vast array of government initiatives are in place to assist in the development of tax payer funded research. Although these schemes are often for the direct benefit of the private companies involved, policy maker’s reason that this will create jobs, generate income for the UK economy and provide solutions for societal problems.

Determining how to allocate seed funding is an activity that requires some analysis and discussion as it is significantly difficult to pick winning technologies that may be 10 years or more from market. One can always refer to questionable assessments by ‘experts’ in the past, such as Thomas Watson, the Chairman of IBM, who in 1943 suggested that there may be a world market for only five computers. Ultimately it will be the marketplace that will determine which technologies live or die.

Commercialising technology requires solving many problems beyond the technical challenges, only some of the key ones have been discussed here. Ultimately, scientists should consider whether the results of their research could provide a direct benefit to others beyond the understanding of a natural phenomenon. If they feel that this could be the case, then they should contact their commercialisation staff or management for advice on how to proceed with its development. Commercialising technology cannot only reap financial rewards for the inventor, it can also progress a field of science as well as serve as a means of providing patient care.

Case study: Smart Holograms Smart Holograms is a spin-out from Cambridge University’s Institute of Biotechnology. It was founded on the basis of a biosensor technology that responds to a multitude of biological and chemical analytes to produce an image throughout the volume of the hologram. Initially this technology was only practiced by a few academic labs and was not well known or understood by industry. Forming a company that was situated locally (on the Cambridge Science Park) allowed the know-how in the Institute of Biotechnology to more easily transfer to the company through collaborations, consultancies and direct recruitment. It also provided a vehicle for commercialising further holographic technologies arising from the Institute.

References
1. Shane. S, Stuart. T, (2002), Organisational Endowments and the performance of University Start-ups, Management Science, Vol. 48, No. 1, January 2002, pp. 154-170.

By Maher Khaled. Maher is a technology associate at Cambridge Enterprise, University of Cambridge.  Before joining Cambridge Enterprise in May 2005, Maher worked in technology transfer at Imperial College Innovations, London.