From cell tohard sell; New centres designed to bring research to

In the debate over how to create a Smart Successful Scotland there is one word never far away from the lips of academics, economic development wonks and the more tuned-in politicians - commercialisation.

It is seen as the vital fuel for the fire that will bring the economy to the boil again. The idea is to create a dynamic range of spin-out companies with the potential to grow into global players. Nice idea, but how is it achieved? This week's launch of the new Intermediary Technology Institutes (ITIs) - centres aimed at attracting international research and at co-ordinating university research with business - will herald an era of greater commercial exploitation of the rich vein of research that already runs through Scottish universities.

First Minister Jack McConnell and Enterprise Minister Iain Gray will launch the ITIs in Dundee on Tuesday, with a fanfare of high expectations and good intentions. Scottish Enterprise (SE) chairman Sir Ian Robinson and chief executive Robert Crawford will also take part in the launch which has been trailed as one of the "big things" he wants SE to achieve this year.

Three ITIs are planned, covering the energy, life sciences and technology sectors, creating hubs to turn ideas into viable, and, ultimately, global businesses. Crawford believes the ITIs will have a role will be to "substantially increase" the number of high-growth technology companies in Scotland. He is expected to announce investment of up to (pounds) 20 million a year over the next few years.

Speculation is rife over whether the energy ITI will go to Aberdeen and the life sciences ITI to Dundee or Edinburgh. What is clear is that the ITIs will have a major impact on the commercialisation process. But there is disquiet in academic circles about where they will fit in to the bigger picture.

Despite investing millions of pounds in university research over the years hoping to unearth commercial benefits, Scotland has a fairly mixed track record. Headline-grabbing university spin-outs such as Kymata, Intense Photonics or Axis-Shield are few and far between. There are exciting young companies bubbling away under the surface but many of them have yet to break through, and in this situation doubts creep in about the viability of commercialisation.

Recent figures for commercialisation across the UK universities paint a brighter picture. A survey by the University Companies Association Unico and the University of Nottingham Business School (NUBS) found that universities created 175 new spin-out companies during 2001, which represents 31% of the total of 554 spin-outs formed in the last five years. The downside is that a minority of the universities, 26.7%, were responsible for more than 10 spin-outs each and a further 25.3% did not create any in that time.

Most of the 13 Scottish universities took part in the survey and Kevin Cullen, who is a board member of Unico and acting director of research and enterprise at Glasgow University, believes it gives an important marker of where Scotland is with commercialisation and where it needs to go.

"We need to be able to demonstrate just how much we are doing," he says. "Some of the spin-out companies being created now are fabulous.

"But anyone who says we should just do more would take us entirely in the wrong direction. Creating a small number of high- value, high- potential companies is the way to go in terms of commercialisation of Intellectual Property (IP). We can now demonstrate quantity but it is not only about more it's about better."

One of the challenges facing university commercialisation departments is juggling the demands from the Executive and SE to focus on both extracting high-quality research and technology to create spin-out companies and on working with the indigenous SME (small and medium-sized enterprise) sector to support their efforts to adopt new technology and develop new products.

Glasgow University last week launched a new (pounds) 1.2m initiative to work with 150 existing and 50 new SMEs with high growth potential for anything from six to 18 months on a consultancy basis to help them develop their technology. The Dialogues (Developing Innovation and Leveraging Opportunities Glasgow University and Existing SMEs) project is being supported by the Strathclyde European Partnership, SE Glasgow and Glasgow City Council. Cullen says it is about developing a clear, coherent approach to supporting the local SME community as distinct from spin-out activity. "We now have a model where we do both at different times," he adds.

Kymata is often held up as one of the finest examples of commercialisation in Scotland, having licensed technology from Glasgow University and Southampton University. The optical components company was snapped up by French company Alcatel Optronics in a (pounds) 82m deal last year. Despite the raft of job cuts announced by Alcatel, Cullen points to this as a successful Scottish spin-out which grew and flourished before running into the global economic downturn.

"Some would argue that it was hyped so high that people were disappointed at the eventual outcome," he adds. "But the fact that it is there acts as a role model. Some of the people from there have got involved again and this is the kind of serial entrepreneurialism that we haven't had in the past. This is what Tom Hunter bangs on about and I agree with him."

A key ingredient is funding and the downturn in the markets, coupled with the bursting of the dotcom bubble, has made business angels more cautious. Many start-ups, spin-outs and otherwise, struggle to find external backing to take them on to the vital growth phase of their business. This "equity gap" in the market has prompted SE to set up the (pounds) 20m Scottish Co-investment Fund to invite bids from early-stage funds and funds investing in smaller growing companies.

Peter Denyer, a business angel who is chairman of Edinburgh spin- outs Microemissive Displays and Rhetorical Voice Systems, is more upbeat about the funding scene and believes the current market travails will be a "temporary blip".

Having started the Vision Group 10 years ago and led it through to flotation and sale, Denyer says the investment opportunities available to spin-out companies have improved substantially since then.

"I was not alone then but there weren't many of us. There are five to 10 times as many young entrepreneurial companies now as there were then so we are doing something right. Although these are tough times, as far as I can see there are more funds available today than when I started Vision in 1990."

Denyer believes Scotland and the UK as a whole has a world-class track record in developing technology but is distinctly further down the pecking order when it comes to selling it. He points to better management as the means of turning good technology into a strong business.

"The key to it is an availability of seasoned management for these companies," he adds. "Quite often still, the good senior managers will effectively have emigrated. Some of them are keen and willing to return but the great majority of them don't. In my opinion that is probably the greatest lack we have in Scotland. There are probably more ideas and more pieces of technology than there is management to take them on."

One of the criticisms often levelled at Scottish universities is that much of the technology they develop is licensed abroad through lucrative industrial sponsorship deals with big corporate companies.

Ewan Chirnside, director of research and enterprise services at St Andrews University, argues that this is where the universities can generate revenues to plough back into funding their prime goals of teaching and research. For universities with high proportions of international students and academics, such as St Andrews and Edinburgh, this process is well advanced.

Chirnside says: "The misconception is that because we are a Scottish university all our professors are Scottish. The majority here are not Scottish and to get them to engage in a Scottish agenda is a bit parochial. You need to get them involved in an economic agenda where they can see the results of their labour commercialised.

"They would say, 'All I want to do is see this widget that I have invented made by a company and used for the purpose I made it for,'" The advent of the ITIs and the impact they will have is shrouded in mist according to Chirnside. While stressing he is in favour of anything that channels more money into supporting the research base in Scottish universities, he is concerned that the ITIs represent a "high-risk policy" in throwing money at future markets for spin-out technologies.

"ITIs are such a high risk, three-pronged, thematic approach that they can't afford for them to go wrong," he says. "Whoever is steering these things has to have international experience of these markets. In my view forecasting these markets in 10 years is extremely difficult. You cannot predict disruptive technology and things that can change the game entirely so you are opening yourself up to happenstance."

There is widespread concern in the universities that the ITIs may function well in increasing the level of licensable research, but that the Scottish SME sector does not have the capacity or ability to exploit these opportunities.

The feeling is that universities are already punching above their weight in terms of research and number of spin-out companies per research grant. Many university research and enterprise offices are already operating at close to capacity with their funding pushed to the limits and would struggle to deal with an increased volume of commercialisation activity without additional funding and resources.

Dr Cathy Garner, former director of research and enterprise at Glasgow University, says the danger is that the ITIs become a "supply- side initiative trying to address a demand-side problem. ITIs, from what we know of them, are going to be adding to the amount of technology coming out of the research base. The big question is whether there is the capacity for absorbing this in the Scottish business sector. Are they going to create more supply for which there is not a local demand?"

Billy Harkins, who recently left the Glasgow University department to launch Science Ventures (UK) to provide management support to help turn spin-outs into successful companies, says that it is time to stop going round in circles.

"Scotland is good at analysing this stuff but we need to focus on doing it. If you take all the debate and all the analysis and all the years spent looking at commercialisation, if we haven't got it cracked by now it is pretty sad."

SCOTLAND'S UNIVERSITY RESEARCH SPIN-OUTS Essient Photonics Optoelectronics spin-out from Glasgow University created earlier this year, which is in the process of raising (pounds) 9.7m of second- round funding.

Vision Group Miniature imaging technology group formed in 1990, based on research by Peter Denyer at Edinburgh University. Taken over by semiconductor manufacturer STMicroelectronics in a (pounds) 23.3m deal in 1998.

Kymata Optical components company based on technology from Glasgow and Southampton universities. Reached a valuation of (pounds) 520m before being taken over by French optoelectronics firm Alcatel in an (pounds) 82m deal last year.

Microemissive Displays Provider of microdisplays for portable consumer electronics equipment, formed in 1999 from Napier and Edinburgh universities. Secured a (pounds) 5m finance deal earlier this year.

Axis-Shield Developer of medical diagnostic kits, spun out from Dundee University in 1982 as Shield Diagnostics. Merged with Norwegian firm Axis Biochemicals in 1999; now listed on London and Oslo stock exchanges.

Terahertz Photonics Optoelectronics component firm spun out of Heriot-Watt University in 2000 with (pounds) 3m start-up funding. Reported (pounds) 2.4m pre-tax loss for last year after being hit by downturn in the telecoms sector.

Rhetorical Systems Voice synthesis specialist, spun out of Edinburgh University two years ago. Achieved sales of (pounds) 960,000 last year, producing a loss of (pounds) 1.1m.

Cyclacel Drug discovery firm specialising in cancer treatments, spun out of Dundee University in 1997. Raised (pounds) 34m of investment last year from 30 international investors.

Intense Photonics Optical chip-maker for telecoms networks, spun out of Glasgow University two years ago. Recently raised (pounds) 10.5m in equity in one of the biggest deals of the year.

Essential Viewing Video compression technology specialist, spun out from Strathclyde in 1999. Secured first-round funding of (pounds) 1.7m last year.

WHAT THE ITIs WILL DO

THREE Intermediary Technology Institutes (ITIs) will be announced in Dundee on Tuesday. It is expected that the life sciences institute will have an office in Dundee, its energy equivalent will be in Aberdeen, while Glasgow will be the site of the communications technology institute. But each institute will be run over a virtual network.

The ITIs will be a long-term project running for 10-15 years and will build on the existing research base in Scotland. They will provide additional funding for research to create future market opportunities.

The model, a hybrid which is based on institutes in the US, Canada and Singapore, delivers a strong market-focused link between the academic and corporate bases in Scotland and across the globe. It is expected to attract leading global players and researchers.

All three ITIs will generate intellectual assets by commissioning research from leading researchers in universities and institutions in Scotland and worldwide. They will encourage the movement of staff between academia and industry and create career development opportunities in an effort to retain technology graduates in Scotland.

The ITIs will focus on market areas in which Scotland could have competitive advantage and will develop its strengths in science and technology. They will be tasked with providing pre-competitive market- ready technology to strengthen existing companies and help to create new ones.

The aim is to make Scotland a world-renowned centre of expertise in niche areas of technology, and increase the number of indigenous high growth technology companies.

Dr Ewan Chirnside of St Andrews, top, and Dr Cathy Garner

Copyright 2002 SMG Sunday Newspapers Ltd.
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