The UK Fights Back

Gary Boas, Contributing Editor, gboas@eggship-media.com

The UK economy has had a tough slog in the past year and a half. At the end of September, the government reported that the gross domestic product shrank by 0.6% in the April to June period, marking five consecutive quarters of contraction. The 5.7% drop in that time doubles that seen during the recession of the early 1990s, and even approaches the 6.4% contraction witnessed in 1980-81.

There are signs of improvement. The government predicts growth in the July to September period, and possibly even an end to the recession by Christmas. Still, one official told the BBC in September, the next 18 months are bound to be difficult. Even when the recession technically comes to a close, “it’s not going to feel very different from three months ago.”

No sector of the economy has been spared during this upheaval. Optics and photonics companies – some of the larger ones, especially – have suffered considerably. Importantly, however, the government has continued to encourage innovation in this area, both through existing programs and new ones designed to address the challenges currently faced within the industry.

Innovation initiatives

In 2004, the UK government established the Technology Strategy Board, an advisory committee composed mainly of industrial business leaders. Initially charged with guiding the government’s technology strategy, the board was given a broader role to play as part of a 2007 change in government organization. It now oversees a range of programs – including Knowledge Transfer Partnerships, Knowledge Transfer Networks, and Collaborative Research and Development – and sponsors a number of micro-/nanotechnology centers.

A grant from the Technology Strategy Board enabled UK company Michelson Diagnostics Ltd. to partner with academic researchers and other companies to develop an OCT probe operating at 1 μm rather than at the conventional 1.3 μm. Although the differences are subtle, the images obtained at 1 μm (top) provide improved contrast and resolution over those obtained at 1.3 μm (bottom) and could offer advantages for particular pathologies.

The board’s mission, according to its Web site, is “to promote and support research into the development and exploitation of science, technology and new ideas for the benefit of business, in order to increase sustainable economic growth and improve the quality of life.” To this end, it has identified priority areas representing major societal challenges – environmental sustainability and health care, for example – as well as key technology areas to help address those challenges. One of the six technology areas is electronics, photonics and electrical systems.

Recognizing the importance of knowledge and technology transfer from academic research centers to industry, the board has created several programs to encourage and facilitate such transfer, including disbursement of grants funding collaborations between academic labs and companies. These efforts are similar to the Small Business Innovation Research program in the US, said Jon Holmes, chief executive officer of Michelson Diagnostics Ltd. in Orpington, UK, although they are much more targeted than the latter program.

In 2007, Michelson Diagnostics was awarded £325,000 from the Technology Strategy Board to further develop an optical coherence tomography (OCT) system for cancer diagnosis and treatment, by supporting collaboration among Michelson Diagnostics, Cardiff University and Gloucestershire Hospitals NHS Foundation Trust. The two-year project focused on development of an in vivo imaging probe that uses OCT to produce high-resolution subsurface images of cancerous tissue – operating at a 1-μm wavelength, in contrast with the longer 1.3-μm wavelength typically used for imaging skin tissue.

Holmes noted that, as the project draws to a close in late 2009, the researchers have determined that OCT images of the skin obtained at 1 μm do not have a clear advantage over those captured at the more conventional 1.3 μm. Still, the grant provided a funded project through which the company could attract and work with leading academic and commercial specialists.

“The relationships we formed with these partners have flowered into further projects, contracts and opportunities of much greater total value than the original grant sum,” he said.

The Technology Strategy Board continues to fund important innovation projects. In fact, Holmes said, the overall amount of funding has increased in the past several years, on the order of hundreds of millions of pounds. He added, however, that this growth is not likely tied to the recession but rather to an expansion of the board’s offerings.

Government introduces VC fund of funds

Other efforts are more directly tied to the difficulties that optics and other technology companies are facing. In late June of this year, the UK government announced plans for a new venture capital (VC) fund of funds, for which it would be the cornerstone investor. Dubbed the UK Innovation Fund, it will include an initial £150 million (US $248 million) put up by the government. The hope is that this will attract further investment by pension funds and the private sector, reaching £1 billion within 10 years.

The announcement was well received by the UK private equity and venture capital industry, according to a June 29 article in The Wall Street Journal, as well as by the country’s biotechnology industry, which has taken a drubbing since early 2008 as investors have sought less risky investments.

The government earlier had announced plans to create a £750 million strategic investment fund to assist cash-strapped high-tech companies, but the British Venture Capital Association and a collection of biotechnology and IT (information technology) trade groups requested that the strategic investment fund be turned into an innovation fund – recommending, in particular, the “fund of funds” model eventually adopted. This model would be most effective, they stated in a letter to the secretary of state for business, enterprise and regulatory reform, in helping early-stage companies survive the economic downturn.

Many of these companies, including biotechnology companies working with optics, have tremendous potential for growth. But after receiving initial funds – oftentimes from the venture capital industry, thus demonstrating their investment prospects – they are struggling to obtain “follow on” funding.

A portion of the £150 million dedicated to the UK Innovation Fund will come from the strategic investment fund.