The dynamos from the dreaming spires

Our best scientists used to be confined to university research. Now Britain is profiting from their genius

Some criticisms of Britain come and go, others seem impossible to shift. For nearly a century, this country has lived with a sorry fact: we have a disproportionate number of the world's most inventive scientific minds, but are truly terrible at exploiting them.

But all that is becoming a thing of the past. The market bubble of 1999-2000 showed that science, in all its forms, has a huge capacity to excite. Small, university-originated companies such as Osmetech, which makes a hi-tech "nose", De Novo Pharmaceuticals, which makes gene-based medicine, and the nano- technology researcher Oxonica are just three that have sprung up and become the target of massive investment. A wave of enthusiasm is washing over the UK's academic scientific community as the belief grows that its work may, finally, see the commercial light of day.

A lot of the problem has been structural. The scientific brains have traditionally been locked away in academic institutions. Within Britain's top univer- sities, extraordinary advances in medical science, engineering and computing have been made, but found nowhere to go. In recent years, the issue has been particularly acute in biotechnology, where the pace of progress in gene and protein discovery, and its application to medic- ine, has outstripped all expectations.

But now, spurred partly by the stock-market success of a few high-profile companies, vice chancellors have realised it is time to extract real value from their laboratory treasures. The market bubble may have burst, but there are still plenty of venture capitalists ready to dish money out to good ideas, and the academic world is playing its part. The products of these collaborations are known as spin-outs, and they are fast becoming the pride and joy of the universities.

Spin-out companies, both small and large, are emerging from their alma maters at the rate of more than 10 a month. Two factors are at work. The first is that the Government, under fire for not making more of British research and fearing another 1960s-style brain drain, has set up funding for the commercialisation of research in universities. The second is that the universities themselves have been even more energetic in setting up bodies to promote the spin-outs. Each has gone about it in a different way, but among the top research faculties, the results have been similar. As Peter Hiscocks, director of the Cambridge Entre- preneurship Centre (CEC), says: "There has been an important change of culture and there is starting to be a real entre- preneurial spirit among academics. A lot of it has been about giving scientists a confidence many of them did not have."

As the universities have embraced industry via the spin-outs, they have encountered many of the problems regu- larly faced by industry, such as the ownership of intellectual property (IP), funding and equity distribution. Coping with these has become a crucial task for these newly formed enterprise bodies.

Oxford University has produced some of the highest-profile spin-outs in recent years, achieving a particular string of successes in biotechnology. Listed companies such as PowderJect, Oxford Glycosciences and Oxford Biomedica fall into this category, but have been joined more lately by spin-outs such as Oxford Ancestors, which uses DNA links to track genealogy, and Oxford BioSignals, which works in neuroscience.

Oxford's success is largely due to its early adoption of spin-outs. In 1988 the university set up Isis, a subsidiary devoted to finding ways to commercialise its research. As its director, Tom Hockaday, says: "Though efforts have increased recently, for 14 years Isis has been helping scientists to spin out companies. Most of our time is spent explaining to the university how industry works and to industry about how the university works."

Oxford has traditionally maintained ownership of all the IP created by its research departments, and taken stakes in the spin-outs. Very recently, it adopted a unique partnership with a company called IP2IPO, a venture half owned by the investment bank Beeson Gregory. In a deal struck last year, Oxford received £20m to build a new chemistry lab on the basis that IP2IPO would have the rights to 50 per cent of the value of any IP generated in the chemistry department over the next 15 years. The structure has already produced two advanced materials spin-outs: Inhibox and Pharminox.

Cambridge, meanwhile, has adopted a different approach. Situated at the heart of Silicon Fen amid 1,500 hi-tech firms, Cambridge has long been a powerhouse of commercialised scientific research. But much of it has arrived there without being closely tied to the university. Its emphasis is on education; it does not want to be seen to be pushing academics, but is dedicated to making it easier for them if they want to go commercial.

"Our mission is to build an entrepreneurial culture at Cambridge University, by teaching skills to the sort of people that will make ventures successful. We have signed up thousands of students to our 18 courses: one of the most popular is the 'Basics of Building a Business'," says CEC director Mr Hiscocks.

For spin-outs that take contracts out with the three-year-old CEC, the university helps with finding investors and arranging mentoring by some of its older success stories, and takes a 3 per cent equity stake. Now working at the rate of two deals a week, Cambridge has produced 120 spin-outs over the past 10 years. Two of the most famous are ARM and Autonomy, which rapidly rose to the ranks of the FTSE 100. More recent spin-outs include Akubio, a ground-breaking technology that allows accurate virus detection from "dirty" blood samples.

One "innovations faculty" that is close to breaking even belongs to London's Imperial College. Its body, Imperial College Innovations, has produced 50 spin-outs since 1997. As its director, Brian Graves, explains, the IP belongs to the college at first. Then, once the spin-out is complete, it is assigned to the new entity and Imperial takes a chunk of equity. Turbo Genset, the power generation company, is among its most famous sons, and ones to watch include Powerlase and CERES in engineering, and Gene Expression Technologies in biotech.

A similar approach has been taken at Southampton University. Its body, the Centre for Enterprise and Innovation (CEI), has produced several highly commercial pieces of research, and the flow of spin-outs is rising fast. Its director, Tony Raven, says: "We try to be pragmatic. If there is just one good idea, we try to sell it to a company. But if the idea looks as though it will lead to a string of other ideas that can be commercialised, we encourage the creation of a spin-out. Photonics is the prime example."

A very different, but highly successful approach has come from UMIST in Manchester. Unlike other universities, UMIST has set up its own venture capital-style company to carry the scientific research through the whole process of incorporation. Its chief executive, Clive Rowland, is firm: "Some universities use a general ward approach, with a consultant coming in every so often. We prefer an intensive care approach. We are on top of the project all the time, and we accordingly have very few casualties. We don't like the sink or swim mentality."

Significantly, researchers at UMIST own their IP from the outset. Prime successes have been Phototherapeutics, a medical company, and VICs, a pioneer of video imaging on mobile phones.

The spin-out era is clearly upon us, and many believe it could have enough impetus to blow away the traditional shortcomings of British industry's relationship with science. As Chris Wright, chief executive of IP2IPO, says: "This is the perfect time to be in the business of scientific and hi-tech spin-outs. The Government is ready, industry is ready, the academics are ready and, believe me, the investors are ready."