Transcript: Episode 11: The financial synergy between research commercialisation and the university

Katy Bruce

Hello and welcome to our 11th episode of the podcast series from UCL Business Big talks on Big Impacts. UCL Business or UCLB is the commercialisation company for UCL, and this year-long podcast series celebrates the company’s 30 years of collaboration and impact.

I’m Katy Bruce, Chief Financial Officer at UCLB and today, I’m delighted to be joined by Charu Garcia, Chief Financial Officer of UCL.

Charu has worked for 17 years in the Civil Service, holding Group F.T. Chief Financial Officer and Chief Operating Officer roles across five government departments – the H.M. Treasury and the Home Office to name two.  The same strong purpose and value system that drives civil service, has attracted her to UCL’s mission and she joined UCL as Chief Financial Officer in November 2021.  Charu is also on the board of directors of UCLB.

Welcome, Charu.

Charu Gorasia

Thank you, Katie.

Katy Bruce

Today, Charu and I will be discussing the mutually beneficial relationship between the technology transfer office, such as UCLB and the university.

We’ll dive into the research income financial cycle; how the commercialisation income is distributed back into the research ecosystem; the challenges around commercialisation income and how you can tackle these; and if we have time, what does the future look like?

So, the first question, Charu. What are your observations upon joining the UCLB board and the World of technology transfer?

Charu Gorasia

Thank you, Katie. And I’m delighted to be here because it’s really nice for us to work across the UCL family to talk to our colleagues about these sorts of issues, so I’m really grateful for the opportunity to do this podcast with you. And in terms of my background, I just wanted to add, I used to be a research scientist before I became an accountant by accident.

Katy Bruce

I didn’t know that!

Charu Gorasia

Yes. I thoroughly enjoy the whole process and completely understand the value research brings to society.

So, in terms of my observations of having joined UCLB and the board,  as soon as I joined UCL now almost two years ago, I joined the UCL B board as well and it was quite exciting for me as someone who used to do research and then became an accountant to see the whole end to end journey of the income flow coming into research, then what we do at UCL in terms of creating that knowledge and then disseminating the knowledge for society, and then how we think about using that to benefit the wider society through the tech transfer process and the commercialisation process even more, so increasing the impact of our research.

And I was quite intrigued in the first few months to see how methodical and systematic the whole process can be at one end, to how it is quite difficult sometimes to make it very predictable because every commercialisation process can be very, very different. The outcomes can be very different. So, the volatility, which I was aware of, but being able to see it firsthand was quite surprising.

Katy Bruce

It’s almost impossible to make it predictable.

Charu Gorasia

Exactly. Exactly. And you and I, as finance professions, we love predictability as much as policy. And when we don’t have it, it’s nice to think about how we work together on it.

And the third observation I would make is, it’s a very good Board. It’s really nice to see how different colleagues bring different skills to that Board and how passionate everybody actually is about the work of UCL Business. And that’s really exciting to be part of.

Katy Bruce

Excellent. Thank you.

It it might be helpful for our listeners if we describe the research income financial cycle from start to finish, from the university’s perspective. And I wonder if you could talk us through what are the very early stages of that and how it flows through.

Charu Gorasia

Thank you, Katie. So, there are two elements to research income. There’s actually a lot more. But just to simplify it for our listener – UK as a country has a dual funding system. So, research grants come to universities, particularly like UCL, because we’re a research-intensive university in the Russell Group and Top ten in the world, and therefore, we attract more research income because of our brand reputation.

All the previous work we do in research and research excellence framework is one way in which policy makers actually assess how good an organisation has been in the past, in particular at doing research and how it’s adding value to society.

Katy Bruce

Your future research income is based on your previous performance.

Charu Gorasia

Your past performance can dictate sometimes what you get in the future, and that’s particularly true of what’s called QR income. So, there’s a dual funding mode. You get direct research grants from various funders, you can get charity research, you can get research income from industry partners, and you get (we get in UCL quite a lot) from UK Research and Innovation and all the different research councils. So that’s one big source of research income.

The second side of that is the QR income, which is essentially money that government gives us, based on the research excellence framework, and they decide who’s done what in that framework, what our past performance has been. And that is used to look at the formula. And that formula distributes the QR income, and that’s used basically to just keep the basic infrastructure around research funded.

But as you ( I don’t know if you or your listeners will be aware of this), that the formal policy is not to fund the full economic cost of doing research. So, we do have to think about when the income is coming in. All of the research income we get, we spend on research. We do not spend on any other activity at UCL. It has to go towards funding research.

Katy Bruce

But it doesn’t cover all of the costs that you incur in research.

Charu Gorasia

No, it doesn’t. And in fact, if you talk to some academic colleagues, it might be a hotly debated topic because and probably, you know, as a research scientist myself from years ago, I would have found that message really hard to swallow, as well.

Katy Bruce

I sense some straying into controversial areas.

Charu Gorasia

Yes, it’s absolutely slight. It’s not controversial for everyone, but it is controversial for many colleagues. But what I can draw everyone’s attention to is if you actually look at UKRI’s own website, they will tell you that our policies are not to fund the full economic cost of doing research.

The maximum funding we’ll give you is about 80% and there’s an assumption that the QR income can cover some of the other full economic cost elements. But in reality, what we see is, particularly in the hyper inflationary environment, the income never really keeps up with the rate at which our cost base is constantly rising.

Katy Bruce

So, for an ambitious university like UCL, who is growing as well, that’s a tricky financial budget to manage.

Charu Gorasia

Exactly. And many charities that we work with will again be very clear that their policies not to fund the overheads involved with research. And so that doesn’t come with full economic cost and some of the research grants we take may come with 30-40% coverage of the cost and there’s a significant amount that is not covered.

And with industry partners as well, sometimes some colleagues will be very happy to work with certain strategic partnerships in order to allow them to flourish in future. They may decide actually they don’t want to cover all of the overhead costs of doing it.

Katy Bruce

So, the costs involved in the research stage alone are hugely significant and not fully covered by the research grants income and the QR income that that comes through. And so that’s establishing the idea.

I know from my side of the table that actually once the idea is created and it can get into the intellectual property, the patent protection and move towards commercialisation, obviously there are ongoing costs associated with that.

Charu Gorasia

Exactly.

Katy Bruce

The intellectual property is assigned to a tech transfer office like UCLB and we have to take on the cost of maintaining the patent protection and managing that asset, and employing people to commercialise it and actually get that research out to the real world. So again, there’s added cost that comes through the whole system. So, getting the income from the commercialisation output is actually quite important to UCL.

Many people may not be aware that the income that transfer offices receive has quite a high level of revenue share associated with it. So as an illustration, for every £100 of income that we receive in UCLB, perhaps £65 of that goes back into the university, to the PI that is involved in the research and to research partners. So, there’s a cycle of the income coming back. How much is that a boost to UCL’s research activity?

Charu Gorasia

Great question, Katie, because like you said, there are hidden costs in the commercialisation process. But equally, when we do get any windfalls from that commercialisation or tech transfer, everyone who’s been involved in the process of generating that income will legitimately want a share of that.

This could be the hospitals that we work with. It comes centrally into UCL, but also goes into the various departments in UCL’S faculties.  And like you say, the inventors who’ve been involved, the PIs have been involved in the process upfront will also get a share of that income. So, in a way, it’s quite a nice ecosystem where the income that’s generated through research is actually being ploughed back significantly into that ecosystem to keep it running.

And in terms of its importance for UCL, it is significant.   As you can imagine, the importance is significant for us. The income streams at the moment are not as significant, so they’re not our main income streams.

To give you an example, because of the volatility in income you can expect year on year, some years it will contribute £3 million to the bottom line. In some years it may contribute as much as £10, 15 to £20 million to the bottom line.  And to put that in context, UCL’s turnover or annual income from research and teaching is £2 billion, so the amount itself is not significant, year on year. But the fact that some of the research that we’ve invested in upfront can be commercialised and you can get windfalls is absolutely crucial to keep the ecosystem going.

Katy Bruce

That’s really good to know and it’s helpful to hear you refer to the returns as windfalls. Given the unpredictability of the income, I often have fun conversations with your financial planning teams. And if you work in technology transfer, I think you’re familiar with the fact that a 12-month financial year is a very, very short window of time, and predicting anything within a five-year window is quite challenging.

Charu Gorasia

But that’s true of research as well, generally, right?

Katy Bruce

Absolutely. Absolutely. The timeframes don’t work well with accounting regulations. And that brings me on to the challenges of commercialisation income, I think. It is very unpredictable and therefore difficult for you to plan around, and you can’t rely on it in your forecast because you don’t know when that will occur and when you’ll receive the funds.

And it’s also very high risk, not everything in our portfolio will come to fruition. So how do you review the potential of our portfolio in that light?

Charu Gorasia

Yes, that’s quite pertinent at the moment because in UCL, we had a five-year strategic plan and then we set a financial strategy to go alongside that plan. And as you say, because the commercialisation income is quite unpredictable and it’s quite hard to decide which year you’re going to forecast that income coming in.

One of the things we had to consider as we were doing that work was, if, say you’ve got 10-20 projects running at the same time and two or three are going to actually give you some commercial income, the the most secure way for an organisation to think about how do I ensure that I get some research income constantly coming in all the time through commercialisation, is just to have as broad and diverse a pipeline of research, commercialisation opportunities and ideas.

Because let’s assume at 1.1 idea really takes us in terms of big windfalls.  At other times, some other ideas might pick up, and some may not go anywhere, and we might fail because we are involved in the risky end, in some way, of doing the research and then commercialising it.

So, to make it most as secure as we can, having as diverse a portfolio and pipeline of projects ready to go into commercialisation, is absolutely crucial. And this is another area as a board member, I’m impressed to see the amount of work UCLB have started doing in mentoring, reaching out to different departments and faculties across UCL to explain not only how the process works, but to guide people through it so that we can start diversifying that portfolio.

Katy Bruce

I’m glad you’ve noticed that it’s something that we have paid particular heed to, and I think in a rapidly changing world with new markets being created all the time, it’s absolutely critical.

It’s very easy to think of technology transfer being your life sciences, your medical sciences and biotech, but actually AI is a massive opportunity and the ethics that feed into this. So, it means that we’re hugely aware the of the importance of covering as much of the UCL research base rather than the traditional areas. So, it’s nice that that’s being recognised. And your recommendations for how to further that are always welcome!

How do you think UCLB are perceived from a financial perspective within the research base, within UCL? Are we’re an asset or are we a cost drawer? What do you think that the view is?

Charu Gorasia

So, I’ve been here now, as I say, almost two years and generally what I hear is positive things about how UCL business is such an asset. How, compared to our peers (which is one thing universities love doing all the time, is comparing ourselves to our peer group and we’re fortunate we have a good peer group we can compare ourselves to) and so there’s always a little bit of healthy competition in who’s commercialising how much in this space.

And it’s good to see that, on most metrics and any measurement that’s done, it looks like UCL is doing well in this space, thanks to UCL Business and the way we work together as two organisations, almost as if we were one from time to time.

So, I think generally very positive, and it’s seen as an asset. But as you can imagine, not every idea can lead to commercialisation and therefore, there will be areas where people have tried and found that it’s not successful. Their experience may not be as positive because they’ve, you know, passionately invested in that area of research, and if they feel that their chances of commercialising it are less than when they see other colleagues being able to do it, of course it’s going to feel like there’s more UCLB and UCL can do to help with that journey.

But equally, let me point to a financial fact, which is when UCLB was set up, any new 100% owned subsidiary of an organisation is going to need initial startup capital. It’s going to need some annual income to just keep its working capital going.  And actually, in the last couple of years we can already see that UCLB has gone from being a loss-making entity or an entity that needed an annual management fee from UCL.

Actually, because you’ve started turning around a little bit of a surplus, that means we don’t have to give you the management fee and that already shows that all those years of investment means we’ve created a very valuable asset for the family, which I’m really excited about.

Katy Bruce

It is exciting. I was delighted to be able to remove the management fee that UCL paid to us from our forecasts and to no longer be taking it because it’s a really good symbol of the fact that we’re now financially self-sustainable. And that’s very difficult in technology transfer because of the revenue share that’s attached to the income. It’s actually really hard to be a profitable or break-even company. And so, it’s hugely exciting for myself and all of my colleagues that that we’ve reached that point. Long may it continue.

Charu Gorasia

We share your excitement, Katy.

Katy Bruce

When it comes to inspiring our research colleagues to engage with the commercialisation process, there’s much more we can do, I feel, about communicating how the financial cycle works and why commercialisation is a worthwhile activity, and engaging with UCL to achieve that is a worthwhile activity.

One challenge we sometimes find from departments is they perceive the returns to be not always useful because they come with short notice due to the unpredictability and they can’t always utilize them in time. What do you think we can do to remove that pain factor for our colleagues and departments?

Charu Gorasia

Yes, I can see that’s an issue that many colleagues have raised with me as well. And you’re absolutely right. We’re in this annual financial cycle, and because of the unpredictability of the income, you just don’t know when it’s going to land. You can’t really plan to spend it properly.

There are a few things we’re working on, but before I touch on the income side, I just think people, I feel, a lot of our research colleagues in particular understand that they’re there to create, disseminate knowledge, but also to help society at large.

And a lot of the commercialisation and tech transfer we’re doing, sometimes it’s about cure, finding cures for diseases we’ve not managed to cure, finding drugs or treatments that we’ve never had in the market before. So, these are life changing decisions we’re making and life changing ways in which we’re bringing those what was just an idea many years ago into the market and helping society, and we’re solving really big problems for society. So, I know that that’s at the heart of what drives everyone every day.

But equally, it would be nice, wouldn’t it, if they could use that income in a more planned way over a longer time horizon. So, one of the areas we’re exploring within UCL in particular is, if there are windfalls that have come from the commercialisation process and they’ve come quite late in the year that we’d not planned for, in order to achieve good value for money and not create an incentive where people just have to spend it somehow before the end of year or lose it.

Katy Bruce

That doesn’t benefit anyone, does it?

Charu Gorasia

Not at all. You’re absolutely right. We’re looking at ways in which we can allow people to take it forward or part of it or all of it, as a capital expenditure over a finite number of years. Because what we don’t want to do is have an infinite time period in which people can spend it, because then it creates lots of little pots of money reserves, which becomes very inefficient.

Katy Bruce

Universities already have enough of that.

Charu Gorasia

Exactly. And we don’t want to create a cottage industry around monitoring every few pounds here and there. So, we just want to make sure we get the balance right. So, it’s something we’ve been working on, and we’ve consulted widely within UCL, particularly with the Deans and the big budget holders, and we’re making some changes in that space from this financial year onwards. So, it’s quite exciting.

Katy Bruce

What more to come! Yes, absolutely exciting.

 

So personally, it’s very exciting to have joined UCLB at what feels like a pivotal time to be joining with a broad portfolio with exciting assets in it and to be financially sustainable. So, I can see a short term, medium term, and long term exciting future for UCLB. I was wondering what your views of the future for the commercialisation side of UCL looks like.

Charu Gorasia

I think the world is our oyster, Katy. Because if I just look at how well our research base has done at UCL over the number of years, and in a couple of years we’ll celebrate our 200th year anniversary and this year we became The Times Sunday Times University of the Year. All of these accolades don’t come lightly, and it comes because of the power of our research excellence and our teaching excellence, which is also in some ways synergistically connected to the research excellence.

So, I think there will not be any shortage of ideas. There won’t be people who are not wanting to cure something tomorrow. They will want to solve society’s problems. So that flurry of activity is going to carry on and continue and we’re going to go from strength to strength.

So, I can see the role of UCLB actually going from strength to strength as well in terms of people want having more of a demand for what UCLB can do in terms of taking their valuable research into commercialisation space. So, I’m really excited by the future.

The one or two areas that you and I have discussed at UCLB board meetings in the past about how we set up the various funds so that we can keep the injection of that capital coming in to help us with the commercialisation is absolutely crucial to that success.

Katy Bruce

Absolutely. Bringing in that external investment and to our spin out companies or to further translational research to bring the technology on.

Charu Gorasia

Exactly. Because we can supply one part of the equation or one of few ingredients in the recipe, but the other ingredients we rely quite heavily on external sources and people coming in to help invest alongside us. So, I’m hoping that if we can make that a success, there will be no shortage of ideas. So, we will go from strength to strength.

Katy Bruce

Absolutely. And it just strengthens the ecosystem even more with those funding partners alongside us.

Charu Gorasia

Exactly.

Katy Bruce

Fantastic. Well, thank you, Charu, for your time. That’s been very enlightening. And thank you for listening.

Charu Gorasia

Thank you so much, Katie, for having me. And it was lovely to have this conversation with you about a topic you and I cared dearly about. So, thank you.

Katy Bruce

Thank you. Please don’t miss out on the next episode of UCL Business Big talk on Big Impact. Goodbye. thank you.