Science Industry Australia, Inc. – Proof of Concept

(PoC) Duncan Jones

Executive Director Science Industry Australia, Inc.

March 17, 2008

What is “The Science Industry”

The science industry conducts R&D, design, production, sales and distribution of laboratory related goods and services used to measure physical, chemical and biological properties.

SIA Member Categories

•  MANUFACTURERS/EXPORTERS of scientific equipment and supplies

•  IMPORTERS/DISTRIBUTORS of scientific goods

•  SCIENTIFIC SERVICE SUPPLIERS – analytical/reference/testing laboratories, technical service companies, specialist recruitment agencies, contract design and R&D companies and other laboratory related services

Science Industry Size 2006/7

•  total market size est. $9.92B •  domestic sales est. $8.79B - around 2% of the world

market •  manufacturing

– production: $1,033M p.a. – exports: $950M p.a. (92%)

•  laboratory related services – production: $5,566M p.a. – exports: $167M p.a. (3%)

•  importers/distributors –  imports: $3,317M p.a.

Source: IBISWorld

Science Industry Statistics

•  growth in all sectors >10% p.a. • R&D intensive industry

– average R&D spend is 8% of sales – 10X manufacturing’s av. R&D spend – equiv. to similar companies in UK & Canada

• workforce is approx. 42,250 – 50% tertiary qualified – 4X manufacturing industry’s average – arguably 2nd. largest industrial employer of

SET graduates

Science Industry Australia, Inc.

•  peak industrial body representing the science industry

•  90+ corporate members •  recently formed Australasian Laboratory

Managers Association (ALMA) as a division

•  250+ individual members

Proof of Concept

•  Industry relies on a constant flow of innovation for new products and development of existing products

•  Publicly Funded Research Agencies (PFRAs) are major innovation developers

•  Currently, a poor job is being done to connect the research side and commercial side of Australia’s innovation system – the “innovation gap”

•  The commercialisation arms of PFRAs are largely ineffective

•  Newly developed IP and and innovation needs to be developed quickly & efficiently

•  This is not happening – the Proof of Concept was developed to help change all this

The Problem •  innovative, ground breaking, class leading innovation is not being

commercialised because: •  not even the most basic checks are performed on the commercial viability of

the innovation, the innovation is not “investment ready” – industry sees the innovation as too risky

•  unrealistic expectations of the value and importance of the innovation arise due to the absence of any commercial due diligence being performed – industry put off immediately

•  these expectations lead to unnecessary involvement of the legal industry at too early a stage – costly and cumbersome – industry loses interest and patience – industry is happy to pay to develop commercially viable innovation

•  poor communication between industry and innovation developers – commercialisation arms prevent access, industry does not know what is being developed

–  Proof: in FY 2004/5 140 VC managers reviewed 10,199 investment proposals and funded 176 – a 1.7% success rate

–  Conclusion: we are a long way short of maximising the return on investment to the public in supporting science & innovation

Successful PoC Implementation Looks Like….

•  The US has a technology management culture that embraces the ideas developed in our Proof of Concept

•  the US has 1,800 dedicated commercialisation staff (across 189 institutions) which in 2006 generated 15,908 patent applications, 3,255 new patents awarded, 697 new products introduced to the marketplace and formed 553 start up companies

•  since 1980 university licensing programs have supported 5,724 start up companies. Total licensing revenue in 2006 was US$1,762M

•  top performers in terms of licensing income are Duke, NYU, Stanford, the University of California system, University of Wisconsin and Wake Forest University

•  the common denominator in all of these top performing universities is that all of them (in one form or another) subject their innovation and IP to a Proof of Concept checklist prior to approaching the marketplace*

Source: AUTM U.S. Licensing Activity Survey 2006

Successful PoC Implementation Does Not Look Like…..

•  Australia has 39 universities, 27 medical research institutes, DSTO, ANSTO, AIMS and CSIRO collectively employing 487 dedicated commercialisation staff in 2005* costing $56M in salaries –  in 2004 859 patent applications were created at 1.75 per head

vs. US in 2006 at 8.8 per head (a 502% difference) –  31 start up companies were formed at 0.06 per head vs. US in

2006 at 0.3 per head (a 500% difference) –  225 start ups were being supported by licensing revenue vs

5,724 in the US – this represents a 688% per head difference –  The Bottom Line: US commercialisation staff generated $1.15M

per head in licensing revenue in 2006; in Australia in 2004 this figure was $0.12M – a 948% difference………………

Source: DEST – National Survey of Research Commercialisation 2003 & 2004 (released Aug. 2007)

Successful PoC Implementation Looks Like II….

•  Proof of Concept will help commercialisation staff work more effectively and efficiently –  we are not asking staff to do more, but to do things differently –  PoC provides a useful framework for people to work effectively

under –  we must do more to maximise the return on the monies invested

into R&D –  industry must be engaged as an important stakeholder in the

whole commercialisation process •  at the moment industry is viewed purely as a source of boundless potential

revenue to be exploited •  we need to be viewed as development partners that can unlock access to

the world’s markets

Who developed our PoC…… •  The Proof of Concept checklist and guidelines was developed by an

expert panel of senior staff from: –  Australian Research Council (ARC) –  Universities Australia (formerly Australian Vice Chancellors Committee) –  CSIRO –  Australian Proteome Analysis Facility (APAF) –  ATP Innovations –  Australian Institute for Commercialisation (AIC) –  InnovationXchange –  Monash Commercial –  UniQuest –  GBS Ventures –  Starfish Ventures –  representatives from Science Industry companies

•  SIA coordinated the activities of this panel which was chaired by Em Prof Chris Fell

What the PoC is………..

•  A simple checklist based on best practice experience across research agencies, universities, commercialisation intermediaries and venture capital companies designed to:

–  ask commercially important questions of the researchers and commercialisation arms regarding their innovation and IP

•  the answers to these simple questions will provide a “Proof of Concept” that industry can use to easily assess the commercial viability of the innovation

–  provide a uniform framework that commercialisation personnel can work effectively and efficiently under

•  commercial research needs to be handled differently to purely academic research.

•  commercial research typically cannot be handed over to the peer review process of academic journals

•  PoC provides the framework for correctly handling and documenting commercial research

What the PoC is II……….. •  A simple checklist based on best practice experience across

research agencies, universities, commercialisation intermediaries and venture capital companies designed to: –  provide a metric that commercialisation arms could publish information

on •  UniQuest for example could collate and publish information of the number of

“Proofs of Concept” undertaken in UoQ and in what fields these “Proofs of Concept” were developed

•  this is the information industry needs and would go a long way to bridging the current disconnect – the “innovation gap”

•  PoCs would act as a very useful intermediate metric on the rate of conversion of ideas into marketable products, processes and services

•  certified “Proof of Concept” work could be listed on an academic’s CV just as legitimately as their publications

•  PoC work is analogous to papers published –  dollars earned, patents etc. being a measure of impact –  similar to the impact of papers being measured by citations

What the PoC is III……….. •  A simple checklist based on best practice experience across

research agencies, universities, commercialisation intermediaries and venture capital companies designed to:

–  reduce the number of poor quality commercial prospects put to industry •  a “Proof of Concept” document substantially “derisks” the project from industry’s

perspective and provides a sound and rational platform upon which further commercial arrangements can be based – uncertainty and unrealistic expectations are minimised

–  facilitate connectedness between PFRAs and local industry – bridge the “innovation gap” that exists

•  currently a lot of Australian industry sources their innovation from overseas where a PoC regime currently exists as it is so much easier and straightforward to deal with these organisations

What the PoC isn’t………..

–  a method to increase the amount of commercially orientated research undertaken at the expense of purely academic research

•  PoC aims purely to improve the governance of the existing and future levels of commercial research and to extract more value from the money spent on this research

–  a complex, time consuming burden foisted on commercialisation personnel that will add to their existing work and will therefore need extra funding to implement

•  PoC is very simple and will replace much of what is currently being done and will give a focus and clarity to the work undertaken by commercialisation arms

–  a prescriptive and inflexible process that has to be implemented in a strictly uniform way

•  the PoC checklist and guidelines can be implemented in whatever form an Institution so desires

•  analogous to the ISO 9000:2004 standard for record keeping and business processes – the standard tells you what you must do, not how to do it

The PoC Checklist

•  A “Proof of Concept” in its simplest form will contain the following information: –  a clear description of the concept/innovation/IP to be proven –  comprehensive review of the current state of the concept and the

field in which it seeks to operate in –  cost – benefit analysis

•  novelty, intellectual property, freedom to operate in the market niche/s identified, potential market size, current competition, potential partners needed etc. etc.

–  likely commercial prospects of the proposal –  comprehensive risk assessment –  further resourcing and funding required

•  Fundamentally a Proof of Concept is a business plan

What to do Next….

•  PFRAs and industry readily acknowledge the existence of the “innovation gap” –  both the 2006 Innovation Summit and the 2006 Parliamentary

inquiry report “Pathways To Techological Innovation” readily acknowledge the “innovation gap” and the need to bridge it

•  Introduction of the PoC checklist and guidelines across Australia’s 39 Universities, CSIRO, 27 Medical Research Institutes, DSTO, ANSTO & AIMS must happen now………..

– suggested timeframe – by Dec 31st 2008 –  Cutler Report on NIS due end July ‘08 –  Government White Paper response approx. Nov/Dec ‘08

What SIA is Going to do Next….

•  participate in the review of the National Innovation System (NIS) –  including gaining support for the PoC checklist –  promote merits of the Taiwanese approach to IP protection

•  promote PoC as an excellent metric to use for measuring the impact of commercial research –  recently announced Excellence in Research Australia initiative

(ERA) needs a measuring tool for commercial research •  participation in the regulatory reform agenda

–  input to Annual Review of Regulatory Burdens from the Productivity Commission

•  continuing development of innovation, science and research policy

–  see: http://www.scienceindustry.com.au/ & http://scienceindustry.squarespace.com/storage/documents/working_with_universities.pdf

In Summary

•  PoC will facilitate all of the following to happen more often and more easily:

–  awarding of innovation licenses, or options to licence –  determination of market based milestones to guide further development –  sale of the technology to an established company –  establishment of a spin-off company from the research institute –  formation of a new high growth start up company to commercialise the innovation

•  Current comparisons with countries operating under PoC regimes show we are doing a poor job in achieving the above outcomes

•  PoC will not require extra funding to implement •  PoC is not prescriptive and can easily be adapted and extended by

an institution to suit their needs, experience and the nature of their research

Further Reading

•  The former DITR PoC factsheet with the guidelines and checklist document that the PoC Advisory Group developed http://www.industry.gov.au/content/itrinternet/cmscontent.cfm?objectid=54C2CACA-E8CC-C856-B65EFA421417CD55&indexPages=/content/sitemap.cfm?objectid=5FD65D4A-B0F5-6E6C-888DA9BD62860FCE

•  A useful short definition of proof of concept - evidence that demonstrates that a business model or idea is feasible http://www.investorwords.com/3899/proof_of_concept.html

•  Science Industry Australia's article in the ScienceAlert Australia & NZ journal http://www.sciencealert.com.au/opinions/20072906-16057.html

•  Science Industry Australia's submission to the PC inquiry into public support for science and innovation which referred to PoC activity http://www.pc.gov.au/__data/assets/pdf_file/0007/37483/sub022.pdf

•  A Labonline journal article that refers to PoC and the science industry http://www.labonline.com.au/feature_article/article.asp?item=1237

•  The HoR report Pathways to Technological Innovation refers to PoC and the science industry's submission on the issue http://www.aph.gov.au/house/committee/scin/pathways/report.htm

Further Reading II

•  The Scottish Enterprise program from which aspects of our PoC guidelines and checklist are drawn http://www.scottish-enterprise.com/proofofconcept.

•  Enterprise-Ireland http://www.enterprise-ireland.com/ResearchInnovate/Research+Commercialisation/Proof_of_Concept_Phase.htm

•  What the Danes are doing http://www.au.dk/invent/poc

•  What South Australian Government has http://www.bioinnovationsa.com.au/proof_concept.htm

•  What NSW Government has http://www.business.nsw.gov.au/industry/biotechnology/proof_of_concept.htm

•  Startup Venture Toolbox http://www.startupventuretoolbox.com/Business%20Proof%20of%20Concept%20Test.htm

•  Proof of Concept Inc http://www.proofofconceptinc.com/