Strategic Research Programme 2011-2016: economic impact

4 Commercialisation

The MRPs are a vital source of technological innovation through the commercialisation activities they undertake. This includes the creation of new spin-out companies and the licensing of intellectual property based on SRP funded research.

4.1 Spin-out Companies

Over the period 2011-16 three spin-out companies were created by the MRPs based on research that was funded, at least in part, by the SRP. As the intellectual property upon which these companies were founded was funded by the SRP (at least partially), it is reasonable to conclude that they would not have existed if the SRP funding was not available and that the benefits they have subsequently generated are therefore attributable to the SRP funding. The counterfactual scenario would therefore be that these companies would not exist.

The three new spin-out companies make an economic contribution through the people they employ and the turnover they generate.

One of these companies, ArxBio, has developed a new platform technology for bacterial vaccines based on SRP funded research. This technology will allow the development of novel and effective vaccines against important bacterial diseases of livestock. The animal health market is a global multi-million pound industry and this new technology is well placed to make a significant impact by generating novel products to prevent and control animal disease.

Arxbio and the research scientists involved from the MRP won first prize in 2012 in the Converge Challenge, a national competition to find the best new business start-up based on innovative scientific research. Arxbio received £25,000 cash and a further £25,000 in support from the Converge Challenge to help establish the company with the aim to have market approved products in the next 3-5 years.

Other SRP-funded research has led to the successful development of the first vaccine in the world for a worm parasite of sheep. The Barber's Pole worm, ( Haemonchus contortus), is the most important roundworm parasite of sheep and goats in the world. Worm infections have traditionally been treated using anthelmintics and although very effective, resistance is increasing with drug resistant strains commonplace in countries like Australia. The vaccine is being successfully sold in Australia through a spin-out company, Wormvax. The first batch of vaccine, consisting of 300,000 doses, was sold within 10 days of the vaccine's launch. Wormvax provides an excellent example of the global influence and impact of SRP funded research. Although based in Australia, the net profits of the company will flow back to the MRP thereby increasing research resources and supporting further research in Scotland.

A third company, GT Biologics, was also spun-out based on SRP funded research and is described in further detail in the case study below.

Case Study 4‑1 - GT Biologics

GT Biologics was spun-out in 2008 based on research directly funded by the SRP. There are trillions of bacteria in the human gut performing a variety of functions that go beyond the digestion of food. Through SRP funding, MRP researchers identified the bacteria responsible for triggering inflammation in the lower gut and the potential for the development of therapeutics. They have been able to identify novel compounds derived from the bacteria that naturally colonise the gut of healthy individuals and have been demonstrated to exhibit potent anti-infectious and anti-inflammatory properties.

GT Biologics was spun out to develop new drugs and other therapies based on the use of these live bacteria for the treatment of inflammatory bowel diseases, such as Crohn's disease and ulcerative colitis and other autoimmune conditions, including multiple sclerosis. GT Biologics initially received support and seed investment from the University of Aberdeen, the Genomia fund and Scottish Enterprise. This was later followed by major investment from the biopharmaceutical company, 4D Pharma.

Under the banner of 4D Pharma, further product research and development has taken place, with the lead product (derived from SRP supported research) shortly about to begin Phase 1 human trials. Following the successful completion of this, much larger Phase 2 and Phase 3 studies will be undertaken and potentially phase 4 studies to provide the basis of dossiers that will be assessed by regulators before the therapeutic can be sold. Drug discovery and development has long lead times with the first sales being generated after many years of clinical development and regulatory approval. The impact of the therapeutic itself will therefore take many years to realise.

However, the company continues to maintain a presence in Aberdeen, occupying 10,000 sq. ft of lab and office space and employing approximately 30 people at the site. In this way, the company makes a contribution to the Scottish economy estimated at £1.6 million GVA and 54 jobs annually, and a contribution to the UK economy of £1.7 million GVA and 59 jobs. This includes the impacts of the company's turnover and employment as well as supply chain and staff spending impacts. Although GT Biologics has now become part of 4D Pharma, SRP funding underpins the research that led to the spinning out of GT Biologics and therefore this economic impact can be entirely attributed to the SRP. GT Biologics was established based on research undertaken in the previous SRP and received major external investment in 2012 propelling it to its current success. As illustrated through the example of GT Biologics, the establishment and development of spin-out companies is a long term process. The impacts of spin-out companies from the current SRP will therefore not be realised yet and GT Biologics has therefore been included by way of illustration of the potential future benefits of this area of activity.

Source: BiGGAR Economics based on Consultation

4.2 License Agreements

Research supported by the 2011-16 SRP has also enabled some of the MRPs to reach license agreements with commercial clients. These agreements give companies the legal right to use intellectual property ( IP) developed by the MRPs to generate commercial gains. In return, companies pay royalties to the MRPs.

As with spin-out companies, the IP that these licence agreements relates to was created by research that was funded by the SRP. If the SRP funding was not available then these agreements would therefore not exist. The counterfactual scenario would therefore be that the impact associated with these agreements would not have been generated.

Between 2011 and 2016 the MRPs have made 28 license agreements with commercial companies for intellectual property based on research funded (at least in part) by the 2011-16 SRP. These agreements generated a total of around £11,700 in royalty payments.

In order to estimate the economic impact associated with these agreements it is first necessary to estimate how much additional turnover they might enable the license holder to generate. This was done based on the findings of a study from 2002 ^[13] , which found that royalty rates typically represent around 5% of sales from products embodying a patented technology.

This assumption was used to estimate that technologies licensed from the MRPs enabled license-holding businesses to generate around £0.2 million additional turnover between 2011 and 2016. This turnover was then converted into GVA and employment impacts using appropriate economic ratios and multipliers. In this way it was estimated that technologies licensed from the MRPs that were based (at least in part) on research funded by the 2011-16 SRP enabled Scottish businesses to generate £0.2 million GVA and support 1 job between 2011 and 2016. (The annual value of this impact fluctuated significantly from year to year reflecting the profile of royalties payments received).

4.3 Impact Time-Scale

The impacts described in this section were all realised during the 2011-16 period but establishing a spin-out company or finalising a license agreement generally represents the culmination of years of research effort so these benefits did not arise entirely as a result of the 2011-16 SRP. Research funded by the 2011-16 SRP did however contribute to the development of each of the companies and agreements considered in this chapter. The 2011-16 Programme can therefore be considered necessary but not sufficient for their existence.

It is important to note that the impacts quantified in this chapter almost certainly represent an underestimate of the true value of the commercialisation activity underpinned by research funded through the 2011-16 SRP. This is because:

• The spin-out companies and license agreements are expected to continue to generate wealth and support employment beyond the 2011-16 period.
• The spin-out businesses and license agreements established during the 2011-16 period are still at a relatively early stage of development. It is likely that as the businesses involved continue to develop the value of the commercial returns to the research that underpins them will increase. As a result, the annual impact considered in this chapter is likely to increase in subsequent years.
• It is likely that research supported by the 2011-16 SRP will one day help to underpin further spin-out companies and license agreements that are not yet currently envisaged. Just as the commercialisation impact realised in 2011-16 is partially attributable to historic research effort, some of the commercialisation impact that will be realised after 2016 will be attributable to research funded through the 2011-16 programme.

As the future value of commercialisation benefits supported by the 2011-16 SRP are not yet known, the impact of commercialisation activity realised between 2011 and 2016 therefore provides a reasonable (if conservative) approximation of the commercialisation benefits generated by research funded by the 2011-16 SRP.