Overcoming R&D's law of diminishing returns

Chief executive of Opsona Mark Heffernan with Wyeth Research's vice-president of inflammation discovery David Simmons. The two companies collaborate on the discovery, development and commercialisation of compounds to treat inflammatory diseases.

Chief executive of Opsona Mark Heffernan with Wyeth Research's vice-president of inflammation discovery David Simmons. The two companies collaborate on the discovery, development and commercialisation of compounds to treat inflammatory diseases.

 

With a small change of emphasis, Ireland can become a global centre for commercialisation of intellectual property, writes RAYMOND HEGARTY

IN RECENT years there has been increased investment by Science Foundation Ireland in university research. The results are starting to show in a few key areas. However, it is unfair to assume that academia will be the sole vehicle to carry the economic benefits promised by the much-heralded Smart Economy.

Let’s take the case of Trinity College Dublin. According to its annual report for 2008, TCD had a total budget of €71 million for sponsored research. The royalty income for the same year on TCD-generated intellectual property was €130,000. There was no income for sales of equity in spin-out companies. What happens if they double their commercialisation activity, or even triple it? The loss will still be more than 99 per cent.

This is not to denigrate the work of TCD. It is well known that the returns on academic research are rarely profitable even in the most reputable technology institutions in the world.

So what will put the “economy” in Smart Economy? It is about being innovative. Put simply, innovation is inventions that are useful. The measure of “usefulness” is decided by the market. The skills required to bring the invention to the market are not the same as those required to produce inventions.

With a small change in emphasis, Ireland has the potential to become a global centre of competence in converting invention to innovation by bringing intellectual property to markets worldwide. In the process, a new language will be developed. This language can then be used to show Irish inventors how to package their offering in the way that is required by the market.

In 1975 only 16.8 per cent of the value of large companies was in the form of intangible assets. By 2005, intangible assets made up 79.7 per cent of market capitalisation, according to Ned Davis Research.

In the world of Intellectual Property (IP), there are currently two hot topics: valuation and commercialisation. Chief executives have come to realise that they are sitting on potential goldmines with their pools of underutilised intangible assets. Commercialising IP is the act of converting those intangible assets into a cash lump sum or an income stream from royalties. This bridge from intangible assets to profits is the Holy Grail of the knowledge economy.

Ireland’s reputation for success in intangibles in the IFSC combined with a recent history of technological industrialisation is a credible springboard to broaden its scope to management of all intangibles. Ireland sent a signal to the world when it introduced tax allowances for the acquisition of IP, which is a prerequisite for IP management activities.

What is the difference between IP approach and R&D approach? According to Albert Einstein: “If we knew what it was we were doing, it would not be called research, would it?”

It is a feature of R&D that the outcomes are not easily predictable. The path to economic success by R&D goes from research to invention and then to intellectual property before – hopefully – ending with commercial success.

The assumption is that if a significant amount of effort is put into research, some inventions will be discovered. Some of those inventions will become protectable intellectual property. Some of that IP will achieve commercial success. At each stage there is risk and the output is diminished progressively, so the final goal of commercial success is not guaranteed.

The IP approach means bypassing the research and invention stages and starting with known intellectual property with a stronger probability of commercial success.

It takes about 10 years to produce a good researcher. Even after a patent is issued, it can take a further five years to find out whether the invention will be a commercial success or not. On that basis, it can be said that any significant investment in R&D effort will take 15-20 years to show first commercial success.

That does not mean that we should abandon R&D investment. On the contrary, if we want to be in a solid position 15-20 years from now, it is crucial that we invest now.

If you manage the commercialisation from Ireland, the commercial viability will be visible within 18 to 36 months.

R&D is a cost-intensive activity. The only way to overcome the risks outlined above is to increase the scale of the investment. Bigger investments boost the probability of achieving commercial success from R&D.

IP commercialisation requires a much lower investment because it is not involved with the generation of the underlying IP.

IP commercialisation requires small, focused teams to deliver success. By their nature, R&D activities will employ far higher numbers of employees. That is why it is important for Ireland in the long term to also have a vibrant R&D base.

Of course the two are not independent. Successful R&D will ultimately lead to more IP being commercialised.

On the other hand, competence in IP commercialisation is an essential route to the market. That clear path from knowledge to profit is a strong economic incentive to undertake R&D.


Raymond Hegarty is chief executive of the IP Foundation with experience of intellectual property and global technology transfer. He is based in Luxembourg