CAN SPINOUTS HELP CEMENT THE UK AS A ‘SCIENCE SUPERPOWER’ ?

New analysis boosts our understanding of why spinouts thrive

Out of more than 165 higher education institutions in the UK, just four universities – Oxford, Cambridge, Imperial College London and University College London – account for a third of all UK spinout companies, according to a report published in January by the Royal Academy of Engineering and research company Beauhurst.

Oxford is at the top of the list, recording 156 spinouts, with Cambridge in second with 140. The University of Bristol recorded 51 spinouts and Warwick, 38. Coventry University reported nine.

Pharmaceuticals, research and medtech are some of the UK’s largest spinout sectors, along with a rapidly developing artificial intelligence (AI) sector.

The report: Spotlight on spinouts: UK academic spinout trends examines where and how effectively innovations developed in universities are being turned into real-world products, processes and commercial successes.

According to the report, spinout companies raised a record £1.3 billion of equity investment in 2018.

Oxford spinout cancer therapy company Adaptimmune, which listed on NASDAQ in 2015 with a market capitalisation of $1.2 billion, is the largest pharmaceutical spinout IPO to date.

Another Oxford company, Oxford Nanopore Technologies, the developer of portable DNA and RNA sequencing devices, raised the most equity investment of all UK spinouts in 2020, with £163 million of its total secured last year.

The report identifies a potential trend towards spinouts attracting less new investment but more follow-on funding. The data includes a huge amount of information, including which universities are successfully generating spinouts, their geographic spread, top sectors, investments and who is making them, growth rates and exits, Innovate UK grants, gender and nationality of leadership. The IP policies and stakes taken by universities are also examined.

The number of deals secured remained similar in 2019, but the amount invested decreased by 18 per cent. While the data for 2020 remains incomplete and the full impact of the Covid pandemic on spinout success and investment trends remains to be fully understood, the significantly increased average investment size could suggest a trend of more follow-on funding and less new investment.

The research has also highlighted that grants are becoming increasingly important as sources of funds for spinouts.

Building on its work to boost innovation through its Enterprise Hub, the Royal Academy of Engineering will use the evidence to inform the wider debate about UK innovation and enterprise. The data will be updated annually to track progress, identify the impact of any changes and draw firmer conclusions on the state of UK spinouts.

Spinout facts

On average it takes a spinout almost 10 years to exit by IPO or acquisition, and 41 per cent of spinouts ceased activity between five and 10 years of age.

Only 20 per cent of founding teams included a female member and only 12 per cent of spinouts have at least one female director.

There is a lack of data available to undertake serious analysis on the ethnicity of spinout founders and directors.

A surprisingly small number of investors account for the bulk of activity, the largest of which, Woodford Investment Management, collapsed last year.

Source: Spotlight on spinouts, UK academic spinout trends January 2021, published by the Royal Academy of Engineering Enterprise Hub and Beauhurst

Record–breaking grants awarded

More than half of spinouts incorporated since 2015 saw a university take an equity stake. The average stake taken by a UK university in the year of spinning out is 22 per centbut this varies greatly by institution and type of spinout.

There were a record-breaking 231 grants awarded to spinouts in 2020, in part due the Covid grants issued by Innovate UK. However, last year did not beat 2019 for the total amount awarded, where £68 million was received by academic spinouts. This includes grants awarded to automotive spinouts Oxford-based electric motor manufacturer YASA (£7.34 million) and Loughborough-based fuel cell engineering company Intelligent Energy (£7.35 million).

Oxford spinout success

Oxford University Innovation supported the creation of 28 new companies in 2020.

YASA in hydrogen flight first

Last summer the first ever flight of Europe’s largest zero-emission plane took place from Cranfield Airport. The aircraft, named the HyFlyer, was powered by two stacked YASA-750 electric motors and hydrogen fuel cells from Oxford Industrial Park-based YASA, an Oxford University spinout. Behind this moment in aviation history is ZeroAvia – a company focused on developing a hydrogen powertrain for aviation.

Of these, four were startups from its incubator, seven were social ventures (some of which were also counted as spinouts) and 20 were full spinouts. Two were founded expressly to address the pandemic.

One of these is Oxsed. Launched just last summer as a social enterprise to develop a rapid Covid-19 test, the company’s test was quickly adopted by Heathrow Airport. By November, Oxsed had been bought by DNAFit Life Sciences Ltd, part of Hong Kong-based Prenetics Ltd.

The Oxford team behind the research and development of the Oxsed rapid 30 minutes Covid-19 test was awarded the Royal Academy of Engineering President's Special Awards for Pandemic

Service for exceptional engineering achievements in tackling Covid-19.

DNAFit Life Sciences acquired exclusive rights to the Oxsed technology based on research from Oxford University. Under the terms of the acquisition, Oxsed will maintain its focus on prioritising low and middleincome countries.

Theolytics, another Oxford-based biotech this time focused on combating cancer, raised £5 million in Series A funding round in January. The round was co-led by Edinburgh-based Epidarex Capital and California-based Taiho Ventures LLC with participation from existing investor, Oxford Sciences Innovation. The financing will be used to progress the company’s pipeline of candidates towards human clinical trials.

Overall, Oxford University Innovation companies raised £1.07 billion in external fundraising, plus an additional £20.3 million at seed stage.