An innovation community: Oxford
9th November 2015
Outside London, it is arguable that no other region has had more of an effect on the evolution of the UK than Oxford. From custodians of the English language to leaders of the country, Oxford has continued to have a major impact on the shape and destiny of the British people.
by Gregg Bayes-Brown of Global University Venturing.
In today’s environment, however, Oxford is becoming more known for innovation. A coming together of academic legacy, government initiatives and the private sector, the region combines four major focuses for its technology base –computing and telecoms, life sciences, engineering and electronics, and physics-based technology such as instruments and cryogenics. These technologies are central to the eight identified by the UK government for stimulating growth, and have been crucial to driving forward the region’s own success.
Oxfordshire plays host to numerous research facilities working in these sectors, giving the area a strong research base. Some of the organisations operating in the area include Oxford and Oxford Brooks universities, the UK Atomic Energy Authority’s Culham Centre for Fusion Energy, the Science and Technology Facilities Council, Rutherford Appleton Laboratory, the Medical Research Council’s Harwell Labs, Diamond Light Source, and the Satellite Applications Catapult Centre, all of which are incubators for potential innovation.
Even before the past 30 years or so of Oxford’s innovation cluster, the region had a long industrial history in the publishing and automotive sectors – the oldest spinout in the area, Oxford Instruments, was established in 1959. Now, the area boasts a labour force with a higher proportion of university graduates than any other English county, plus at least 1,500 high-tech firms across a range of sectors employing around 43,000 people, in a location accessible to both London and one of the world’s largest airports, Heathrow.
Oxford’s local government has also been a driving force in innovation. The Oxfordshire Local Enterprise Partnership (Oxlep), launched in 2011, has been working to bring together all parts of Oxford’s ecosystem to drive its economy forward. It has been instrumental in attracting further funding to Oxford, such as an EU package worth £16.95m ($25.7m) that will be spent on updating Oxford’s transport links over the next five years, as well as supporting incubation activities within the cluster.
The private sector also plays a role. Split broadly into two camps, local firms are a part of the ecosystem by virtue of proximity, and global players, such as Pfizer, GlaxoSmithKline, Samsung and Rolls-Royce, are active in the area – Rolls-Royce conducts more research activity in Oxford than anywhere else. Google has established more collaborations than any other firm in the area relative to the period of time it has been operating, whereas firms like Toshiba are working there on driverless vehicles.
However, central to these efforts is Oxford University. One of the oldest universities in Europe – so old that no one knows exactly when it was founded – the institution has educated many of the UK’s leading figures over the years. These days, however, Oxford is not known just for its world-class teaching, but also for being the lynch-pin in some of the best innovation the country has to offer.
Oxford University can rarely be accused of failing to think big. Number one in the UK for its research impact and consistently scoring at the top of global rankings, the institution produces some of the best research and academic spinouts in the world.
Managing that innovation output has been Oxford University Innovation, the university’s technology transfer office (TTO). Named as Global University Venturing’s TTO of the year in 2014, the office generated £23.5m of revenues for 2014-15, up from £14.5m the previous year, and returned £16.5m to the university during the same period, an increase of roughly £10m from the year before. It is the most prolific patent filer in the UK, and has created the most university spinouts – 110 companies over 25 years.
Tom Hockaday, managing director of Isis, sees Oxford as an innovation community as opposed to an ecosystem. Suggesting that the word community should replace the often-used term ecosystem, Hockaday said: “The innovation community concept gives a better understanding of what it is all about. We are all trying to be good neighbours, get on with one another, and work closely together.”
Isis has been an active part of that community since it was launched in 1988. One way it has had an impact is through the development of the Oxford University Innovation Society, established in 1990. The project, itself an innovation at the time, brought together a number of organisations involved in Oxford’s innovation process to discuss technology opportunities and challenges, including building the teams for spinouts, bringing technology to market, and creating the strong base on which to build that innovation.
Another way Isis, along with the government, has had an impact is through the £50m University Challenge Fund (UCF), which was set up in 1999 and provided the early funding and resources to bolster Oxford’s innovation.
When asked whether the government should consider another round of UCF, Hockaday was an enthusiastic supporter.
“It has been discussed for years. When people from the government come by, one of the points we make is that the provision of proof-of-concept support provides some of the best return on investment available to the government. In government terms, the UCF was not very much, and was across the whole of the UK, with Oxford getting £3m, half from the government, half from Wellcome Trust [a charitable foundation supporting health research].
“What we have demonstrated – and it is not just us, it is across the country – is that the provision and availability of proof-of-concept funding pre-deal, before the first commercial transaction, is really important in turning research outputs into opportunities that are recognisable by investors.”
However, some of Isis’s biggest wins, even by Oxford’s standards, have come in the past year and a half, starting with 2014’s largest university spinout exit, gaming firm NaturalMotion in a $527m acquisition.
Since its founding in 2003 as a spinout of Oxford’s zoology department, the technology underpinning NaturalMotion has become cornerstone software for the development of computer games at the top of the gaming food chain. Its two animation packages, Morpheme and Euphoria, have been used in some of the most widely acclaimed titles over the past decade, including several by games developer giant Rockstar, such as Grand Theft Auto IV and V, Red Dead Redemption, and Max Payne 3.
It was on this solid footing in the industry that NaturalMotion decided to become a games developer in its own right. Moving into the mobile gaming industry, it released CSR Racing in 2012 for iOS. The game would top Apple’s App Store gaming chart in 70 countries and, at one point, was delivering $12m in monthly revenues. Clumsy Ninja, its second offering, was launched alongside the iPhone 5, and went on to receive critical acclaim.
The company’s rise as one of the UK’s most successful mobile companies led to its acquisition by gaming company Zynga for $527m. While Zynga’s games operate less like a traditional video game and more a social psychology experiment with sunk cost fallacy, the company has enjoyed worldwide success in the past with social network games such as Mafia Wars. In 2010, its flagship game Farmville had one in five users of Facebook hooked, around 84 million players, and created such an avalanche of notifications bordering on harassment for the other 80% that the social network had to change its messaging rules.
The change forced Zynga into mobile gaming, and it has since failed to replicate the success of Farmville. However, the acquisition adds CSR Racing and Clumsy Ninja to Zynga’s portfolio, bolstering its outlook in the mobile games sector. More crucial, however, is the intellectual property it has now inherited. The same technology that brought Grand Theft Auto IV to life will now be added to Zynga’s games, bringing with it a new dimension of graphical immersion.
It is this technical know-how that Zynga believes is worth the $527m investment, with the overarching ambition that better graphics will give the company the edge it is looking for in the increasingly crowded mobile gaming sector. It is also signifying a big win for Oxford, with the deal returning £30m ($50m) to the university.
In July, Immunocore, an immunotherapy firm with origins at Oxford University, secured the largest European life sciences fundraising round yet at $320m.
The Oxford-based biotech raised the cash from pharmaceutical group Eli Lilly, life sciences investor Malin, RTW Investments, a number of new and existing private backers, and Woodford Investment Management, which led the round jointly with Malin and is one of renowned British investor Neil Woodford’s two funds. Between them, Woodford and Malin provided $80m of the total. The round was the sole fundraising held for Immunocore since it became its own company in 2008.
The round is not only Europe’s largest, but the second-biggest life sciences round worldwide. Only Moderna Therapeutics, a US-based life sciences firm developing messenger RNA therapeutics that can be used to map a new or existing pathogen’s genome and produce an antibody to kill it, has raised a bigger round with $450m announced at the start of the year. Immunocore’s round bumps Reliant Pharmaceuticals’ $273.7m into third place, followed by Jazz Phamaceuticals at $250m and Intrexon at $200m.
Immunocore already has several agreements with high-profile pharmaceutical firms, including GlaxoSmithKline (GSK), Genentech and Medimmune, the research and development unit of AstraZeneca. In 2013, GSK contributed $222m for preclinical rights to drugs Immunocore is working on. In the same year, the firm agreed to a similar deal with Genentech with an upfront payment of between $10m to $20m with over $300m in milestone payments on the table. In 2014, Immunocore entered a research and licensing collaboration agreement with Medimmune, in which the Oxford firm received $20m in upfront payments and a further $300m in development and commercial milestone payments with further royalty payments dependent on success.
The firm is a sister company of Adaptimmune, another immunotherapy company originating from Oxford which raised $104m in its series A last year and held an initial public offering (IPO) worth $191m in April. The two firms originally come from Avidex, an Oxford University firm spun out of the institution in 1999. Avidex would go on to be acquired by German Medigene in 2006 which would later spin out Immunocore in 2008.
Similar to Adaptimmune, Immunocore is working on cancer-focused immunotherapies based on genetically-altered T-cells. In immunotherapy, T-cells are removed from a patient’s body, adapted to identify and kill cancer or infectious diseases, before being reintegrated with the patient. Upon infusion, the cells can find and attack tumours the immune system would have previously missed.
The technology has proven hugely successful in trials, with immunotherapy companies reporting high rates of complete remission in patients, even in those previously thought terminal. One market leader, US-based Juno Therapeutics, has seen complete remission in 88% of patients in its phase 1 and 2 trials, and immunotherapy trials conducted by Pennsylvania University have reported patients previously terminal who are cancer-free five years later.
Investor enthusiasm for immunotherapy has soared in recent years – the market could be worth $35bn a year within a decade. Juno raised $176m in its series A, followed by $134m in a series B and $265m in an IPO, all achieved within a year of the company being launched. Since going public, there were fears that immunotherapy investment was cooling, fears that were quelled earlier this month when biotech Celgene agreed to invest a further $1bn in Juno, paying $93 a share or $850m over 10 years and $150m in upfront payments. Shares in Kite Pharma, a peer of Juno and a spinout of University of California Los Angeles, jumped 10% on the news. Kite has also had strong fundraising success, raising $35m in its series A and $128m in an IPO last year.
Immunocore is not the only bet Woodford has placed on a university-linked immunotherapy firm. Woodford Investment Management joined Invesco and Imperial Innovations – the technology transfer office of Imperial College London – in backing Cell Medica, a company formed by Innovations in 2007, when it held its series B worth $79m last year.
Multiple university and research institute spinouts are following in the footsteps of Juno, Immunocore, Cell Medica and Kite. Oxford itself recently launched another immunotherapy firm, iOx Therapeutics, in partnership with Ludwig Cancer Research. Medical University of Innsbruck launched Vira Therapeutics last month with $4m in series A backing. Sapvax, an Auckland University spinout, was launched recently and is currently searching for $8m to get off the ground. Victoria University partnered Malaghan Institute of Medical Research in May to launch Avalia, which has already attracted a solid consortium of backers. Fred Hutchinson, one of the three institutes behind Juno, saw another one of its immunotherapy firms, Adaptive Biotechnologies, raise $195m in the same month. And University College London joined the hunt at the start of the year, launching Autolus with $45m in backing.
The Immunocore, Cell Medica and Adaptimmune successes could be a boon for Autolus and iOx in particular, as it would appear the same enthusiasm that has benefited Juno, Kite and Adaptive has found its way across the Atlantic – especially when the large funds raised by Oxford Sciences Innovation, Malin, and Woodford Patient Capital Trust are taken into account.
According to Financial Times reports, Immunocore’s round will not give Eli Lilly special rights to Immunocore’s intellectual property. It has kept its most valuable technology away from deals with the other pharmaceuticals. The round also sets Immunocore development up for the next three to five years, and gives the company the choice of remaining private or holding an IPO. If it goes public, it is thought Immunocore will list in London because of CEO Eliot Forster’s links to London mayor Boris Johnson’s MedCity programme, of which Forster is head.
Commenting on the deal, Hockaday said: “Immunocore and other companies like them have come good in recent years after many years of effort, dedication, and focus based here in Oxford.”
The university has also supported the launch of two seed funds at Oxford University Innovation. The university is partnering Isis and several big-name investors to create Oxford Sciences Innovation (OSI), the largest single university venturing fund yet recorded by Global University Venturing, with the possible exception of the Stanford Start X fund depending on whether you believe calling an endowment-fuelled fund “uncapped” automatically makes it bigger than any fund with a stated size.
OSI has blown past its target of £300m. Launched in May with £210m backing, the fund quickly attracted Google Ventures and others to reach £320m in June. The size of OSI is bound to change the course of debate over university venturing as the institution puts all its chips on a financial model it hopes will support its spinouts for the foreseeable future. To put it in perspective, OSI is raising more than double UC Ventures’ headline grabbing $250m fund launched to cover all the University of California campuses last year, and in one swoop has come £26m shy of the total £346m collectively raised by Imperial Innovations – Imperial College London’s TTO and the UK’s biggest university venturing unit – since 2005.
The fund’s history can be traced back 15 years to the formation of commercialisation firm IP Group,when founder Dave Norwood, now chairman of OSI, secured £20m from investment bank Beeson Gregory to give to Oxford academic Graham Richards for a new chemistry research lab in return for 50% of the university’s stake in chemistry spinouts in a deal that ran for a decade and a half.
“We have always kept in touch with Dave Norwood and seen the sector grow and institutional investors getting involved,” said Hockaday, who added that the fund was a product of people in Oxford talking with Norwood and institutional investors, and looking to do something really big for Oxford.
What is crucial about OSI is that it can afford to take a long-term view on its investments over a 15-year lifecycle, necessary for the development of life sciences and other long-term commercialisation projects. It is granted this ability by the sort of institutional investors involved, which include Invesco, Lansdowne Partners, IP Group, Oxford’s Endowment Fund, Wellcome Trust, Woodford Investment Management, as well as Google Ventures, the internet group’s corporate venturing arm. Both Invesco and Lansdowne are investors in Imperial Innovations and Cambridge Innovation Capital (CIC), the £50m university venturing fund launched by Cambridge University in 2013, and have taken this long-term view on both investments, while IP Group, Woodford founder Neil Woodford and IP Group are veteran investors in the university innovation space and thus understand the time requirements involved.
“One of the aspects is OSI’s size, and its intent to invest from the very start of spinout companies through the many rounds a spinout might require,” said Hockaday, adding that one of the real attractions is that through the institutions investing, OSI “brings the network and connections into some of the most powerful and sophisticated investors in the UK, both in terms of sources of money and in terms of expertise and capability”.
Overall, Hockaday suggested that it was building a network with innovation at the core that was key to Oxford’s model, and that having a free flow of people and discussions was central to what Oxford did, adding: “The range of ways and models this stuff happens is infinite.”
For those looking to emulate Oxford’s success, Hockaday said: “Be innovative. Be open to open innovation. Look around and ask what are our strengths, who is active in our community, what is missing from our community, how do we fill in those gaps to build our community. This enables people to develop their ideas rather than stopping them doing it.”
Oxford University Innovation would like to thank Global University Venturing for allowing us the right to republish.
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