After a phase of low investments and question marks over the effectiveness of university-based medical technology spin-out companies, recent years have marked huge successes for such businesses. Commercialisation activities have long suffered from a poor image in the UK when compared to the US market. In 1993, the UK Government White Paper ‘Realising Our Potential: A Strategy for Science, Engineering and Technology’ reflected a policy interest in innovation which has been growing ever since.

Proving to be great sources of new, imaginative and much-needed healthcare technologies, banks, venture capitalists and angel investors are really starting to see spin-out companies as worthwhile investments. We look at the current status of university spin-outs in the UK.

The growing success of UK spin-outs

The idea behind university spin-off companies is that they develop and market technological inventions developed from university research that are otherwise likely to remain unexploited otherwise. A classic example of a university spin-out that has made it to the big time is Genentech. First formed in 1976 with the discovery of recombinant DNA technology and is now a subsidiary of Roche Biotechnology. Another vector and viral products supplier, Crucell, was a spin-out from Leiden University and is now owned by Johnson & Johnson.

Interestingly, recent reports have shown that Scottish universities have produced more spin-out companies over the past decade than any other part of the UK. The internet database Spinouts UK published information to suggest that Scottish institutions had created 172 firms, followed by London with 115, followed by the south east region with 85. Edinburgh University topped the list for the formation of new spin-out companies in the period 2008 to 2010, with 16 new spin-outs. But it was London’s Imperial College which produced more spin-out businesses than any other UK university between 2000 and 2010 with 59. Leading research universities Oxford, Edinburgh, Cambridge, Warwick and Strathclyde followed in the league tables.

Medical technology spin-outs are big news in the UK. Successful spin-outs north of the border include Scottish medical firm Ambicare Health, formed as a partnership between Dundee’s Ninewells Hospital and St Andrews University, which produces a light-emitting plaster for the treatment of non-melanoma skin cancer.

Nottingham University counts FaHRAS, Monica Healthcare and CellAura Technologies amongst its many spin-outs. The latter is a drug discovery company which has developed fluorescent molecule-based technology. The company has won a contract with a major pharmaceutical company and currently supplies academic groups in five different countries around the world with the nine items in their increasing product range. FaHRAS develops family history risk assessment software enabling clinicians to perform breast cancer risk assessment, and Monica Healthcare provides technologies for portable fetal and maternal monitoring.

Building spin-outs that flourish

A key factor of success of a new business is finance. So investors also tend to become shareholders, paying cash for their shares. That cash can subsequently be used to pay for development, management and the purchase of raw materials. In many universities, the model is that one of the investors will be from the university’s own ‘seedcorn’ fund.

Another factor of success regarded as being as crucial as finance is having the right management in place to run the spin-out company. Whilst some university team members may play a role, in almost every case professional managers will be required to run the business. These managers may need the incentive of the opportunity to become a shareholder in the future, for example upon achievement of a significant development, so it may be necessary to create a share option pool.

While there is an upwards trend of successful medical spin-outs, current opinion is that despite promising signs, the UK is not yet commercialising its tremendous intellectual property and innovation in the same way as the United States.