The path forward for commercialising university research

What do IVF, the bionic ear and the HPV vaccine have in common?
These inventions were all developed at Australian universities.

Australia’s universities have a strong track-record of discovery and innovation. And the role of this research has never been better understood, with academics at the forefront of the national discussion around COVID-19, on topics from vaccine development to navigating lockdowns.

But when it comes to translating research outputs into long term commercial opportunities there are fewer Australian success stories – especially outside of biomedicine.

Australia ranked last in the OECD for business collaboration on innovation with higher education or government institutions in 2016-17, at just 1.6% relative to the OECD average of 14%. And there’s little to suggest things have shifted materially since.

What then, are the steps to enabling greater research commercialisation?

The first is to fully appreciate its value.

The 2020 Federal Budget’s $1 billion Research Support Package provided a welcome funding injection to universities, and signalled that the Government’s innovation agenda will play a key role in public funding for the university sector.

In 2018-19, higher education organisations spent more than $12 billion on research. About $3.5b of this expenditure was funded via government research funding and competitive grants, suggesting that governments directly funded around 30% of research activity. Businesses funded an estimated 4%, while much of the remainder came from other university revenues.While there is scope to increase private funding to university research, viewing research commercialisation only as a revenue stream for universities fails to fully appreciate the opportunity. The value of university partnerships is far greater than their revenue generating potential for universities – or for that matter industry.

In 2015, Deloitte Access Economics estimated that of the returns from international research collaboration, 10% accrue to the university (through increased student enrolments, patents and licenses) and 90% to the public (as business, government and industry apply and benefit from the knowledge). In 2020, Deloitte Access Economics estimated that every $1 invested in higher education research and development is linked to a $5 return to GDP.Innovation is a public good – one essential to our productivity and adaptability, and one we need now more than ever.  Society is facing some of the most wicked problems seen in history – a warming planet and a transition to net zero, a global pandemic, social fragmentation – and the solutions to these problems lie in pairing the ground-breaking frontier thinking of university researchers with the acumen, influence and reach of businesses.

To unlock this opportunity, it’s critical to understand the gap between university researchers and industry investors.

The nine-stage technological readiness scale explains this gap.

Figure : Typical funding stages in the commercial and technological readiness lifecycle

Source: Deloitte Access Economics based on ARENA and CSIRO 

At one end – readiness levels 1, 2, 3 and 4 - is the discovery research that takes place at universities. There might be a hypothetical commercial proposition of the research – but, at best, its proof-of-concept has only been validated in a lab environment.

At the other end of the scale – readiness levels 7, 8 and 9 – lie the feasible products, which have been tested in a range of conditions, with sufficient success to attract private sector investment to scale up production for a commercial setting.

Between these initial and final stages sit the proof-of-scale stage. Sometimes called the ‘valley of death’, it refers to those stages where risk is often too high to justify business investment, but where universities alone don’t have the capabilities or mandate to invest further in commercialising these ideas. There is an incentive and risk mismatch for both business and industry – and as the name suggests - few projects progress from the proof-of-concept stage to the proof-of-scale stage.

There is a role for government to provide initial funding to fledgling but promising projects in this middle zone – thereby reducing the level of risk the private investor must bear. Grant schemes and public equity investments are often used to support research translation at this middle zone – the Biomedical Translation Fund being a leading example in Australia.The Biomedical Translation fund is a co-investment scheme, where $250 million of Federal Government funding is matched by three licensed venture capital fund managers. The fund has two policy objectives – to invest in the commercialisation of promising discoveries, and to support those developing these ideas by ‘addressing capital and management constraints.’ This second goal points to the need to support the translation and collaboration capabilities of both universities and industry, recognising the skills contributed by industry, rather than bemoaning a lack of commercial acumen among academics.

The events of the last 18-months have catalysed the opportunity. They have amplified the incentives for universities to collaborate with industry to drive innovation and build the workforce of the future.

This critical juncture for the Australian economy brings with it a unique opportunity to share responsibility and collective action to support innovation and collaboration. To ensure resilience to disruptions – including technology, climate change, geopolitical tension and a pandemic – it’s necessary for Australia to become more economically sophisticated and secure our future prosperity. Harnessing the benefits of research commercialisation will be critical to increase Australia’s economic diversity and innovative capacity.

Alongside revisiting funding, a change in the positioning of partnerships in the sector could enable change on the culture and process of partnerships. This might include:

• Providing a clear mandate to universities to guide their research agenda - University chancellor and business leader Catherine Livingstone called for a national agreement on the purpose of universities to guide funding on decisions such as this.
  
  
• Ensuring research funding is sufficient and transparent, in support of a transition to new funding streams - University leaders have reiterated that continued funding of basic research will be an essential complement to applied research funding.
  
  
• Revisiting researchers’ translation incentives - The 2015 Watt Review recommended that Australia implement an impact and engagement framework to accompany the Excellence in Research Australia (ERA) measures of research quality to incorporate measures of innovation and industry engagement.
  
  
• Building platforms to connecting industry and university - the new NSW Higher Education Strategy (2021–25) seeks to ‘strengthen collaborations to bolster research outcomes’, through  innovation precincts, open data and matchmaking between researchers and users.
  
  There is unlikely to be a silver bullet that will allow us to make the sort of progress towards greater commercialisation that we have been seeking for more than two decades. A range of solutions should be considered and tested, running the gamut of policy and strategy, from funding reform to business tax incentives, all ultimately geared towards boosting incentives for greater collaboration to close the valley of death.