‘Make sure you are selling a technology that the world needs’ with Prof Duncan Graham and Prof Karen Faulds

Duncan Graham and Karen Faulds are both chemistry professors at the University of Strathclyde in Glasgow. They were part of the team which founded the diagnostics spin-out company D3 Technologies in 2007.

Duncan and Karen share what they learned from both starting and closing the company including:

• Their long, slow journey to try and make D3 Technologies a viable business
• The importance of talking to potential customers to make sure they actually want the product
• Why they are only now considering a new spin-out opportunity
• How university support for spin-outs has improved since their first attempt

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This podcast was a collaboration between the University of the West of Scotland, Converge and Sarah McLusky. The podcast team includes Orla Kelly, Adam Kosterka, Jen Black and Sarah McLusky. Proudly supported by the Scottish Ecosystem Fund 2023-24.

Transcript

Duncan Graham
A lot of our work is publicly funded and want to make sure we can use that to benefit society wherever we possibly can.

Karen Faulds
When the previous spin-out company ended my main concern was the people. You know it takes a lot of thought to actually go back down that path.

Duncan Graham
It gives you a bit more confidence this time that someone’s there saying, our market needs this.

Podcast Intro
Welcome to the Academic Adventures podcast. This podcast is all about people who have embraced the opportunity to combine their academic work with entrepreneurial ventures. You’ll hear about the highs and lows, balancing responsibilities and grabbing opportunities, plus advice for anyone thinking about following a similar path.

Sarah McLusky
Hello! I’m your host Sarah McLusky and my Academic Adventurers for this episode are Duncan Graham and Karen Faulds. They are both professors of chemistry at the University of Strathclyde in Glasgow.

Along with partners Ewan Smith and Jim Reid, they founded the diagnostics spin-out company D3 Technologies in 2007. But the story doesn’t begin there. The Raman spectroscopy-based test they were looking to commercialise was patented back in the mid-1990s and a complicated and cautionary tale follows. With investment from equipment manufacturer Renishaw, at one point the company employed 42 people, but challenges like protracted medical validation procedures and struggling to find enough customers meant the company never quite became viable and it ceased trading in 2016.

Stung by the experience it’s only now that Duncan and Karen are considering dipping their toes back into these entrepreneurial waters, this time with some very clear market demand.

Sarah McLusky
So welcome Duncan and Karen. Thanks so much for coming onto the podcast to tell us a bit about your experiences. So I think that's a good place to start. I wonder if you could tell us about the spin-out company you're involved with and how it went.

Duncan Graham
That’s an open-ended question I think. So where to begin? It's quite a long I guess build-up to this that we've been working on this technology known as surface-enhanced Raman scattering. Since before I joined the University in 1996, in fact I joined in 1996 to work on a project sponsored by AstraZeneca or Zeneca Diagnostics. Before even AstraZeneca...

Sarah McLusky
That’s going way back.

Duncan Graham
So yes, Zeneca Diagnostics had this idea that they could use surface enhanced Raman scattering with an assay that they had developed for testing for DNA sequences relating to disease. And it started with cystic fibrosis testing and looking for that main mutation which gave rise to the lack of the secretory protein.

So we started off there, we filed various patents. We built it up over time. We thought we were aiming for a license deal with Zeneca, then AstraZeneca. Things change. The people we were working with within Zeneca Diagnostics left Zeneca Diagnostics, took their IP, formed a company which was subsequently sold to, I forget the name of the company, but they made a lot of money.

Sarah McLusky
Okay.

Duncan Graham
They were championing partly our technology but also their own technology. We were then left with our IP which had been assigned to Zeneca and we wanted to do something with this. We weren't sure what to do because we're academics so at that point it was myself and Ewan Smith who was the other academic in this set of three and we were introduced to a number of different consultants and I say a number we went through, maybe six or seven different consultants

Sarah McLusky
Oh that's quite a few.

Duncan Graham
Yeah, who came along and spoke to us about their vision for what we could do in this sector, how we could maximise the impact from the research and the IP. And it took us time. And in the meantime, we'd been continuing to file patents. We had continued to work with different companies in different parts of the inventive fields. We were licensing parts of an IP into various fields. We're working with companies like Phillips, with an American company called, it turned out to be American in the end, but it was British to begin with, called Exonica. We had various license deals. It was quite complicated how we were going to exploit this.

And then eventually we were introduced to a, I guess, business consultant who had previously worked for Roche, understood the DNA diagnostics market, and was interested in this new technology and suggested that we form a spin-out company. And from that point, we felt that would probably be the best way to do it. So eventually we got all the ducks lined up and we created a spin-out company that was called D3 Technologies in July 2007, so approximately 11 years after we first filed that core patent we eventually formed the spinout company.

Sarah McLusky
It sounds like it took a long time, but you've explained there quite well why it took a long time with all this, exploring all these different ideas and things.

Duncan Graham
Yes and it's challenging because when I started out I was on fixed term, short term contracts. I didn't know what I was going to be doing. We had other people joining the group so Karen joined as a PhD student and a postdoc and became a member of staff and we didn't know how that was going to turn out. Ewan was coming up towards retirement so what was he going to do?

So it was all a mixture of the people involved the patents that we'd sub-licensed and licensed to other companies, and then what the field in general was doing in terms of advancing to create new capabilities for the area of DNA testing, which is what we were trying to work on.

So it was a complicated matrix, and at some point it all seemed to align because Ewan got to 2007, which was his retirement year. He said, well, I'll retire, but I'll become the first CEO of the company.

So that worked out quite well. Karen then became the academic in the SERS world at Strathclyde taking over from Ewan. And I was an academic there already. And we had that consultant who came along to work with us with the company and he became one of the founding members as well.

Sarah McLusky
Excellent. So you've said a little bit there about the different roles that people took in the team. So you said Ewan was your CEO and then, how did, how did the rest of the team come together? Was it just the four of you that you've mentioned there? Were there other people involved?

Duncan Graham
So at the beginning, to get it set up, Ewan was really the senior guy driving this, along with our external advisor who came along. We then approached a major corporation who we wanted to invest into the company. So we managed to secure some initial investment from them. So we set up the company.

And then we basically gave the, well, we sold equity to them after we set it up almost immediately. And that then set the roles and responsibilities within the company from an early stage. And then we started to employ people into the company. So really the founding members of the company were myself, Ewan Smith, Karen, our external mentor who was a guy called Jim Reid. And then they were and the university, so there were five founding members and then we sold equity to Renishaw who then came on board to become our major partner.

Sarah McLusky
Oh, and on reflection, did that feel like it was the right way to structure the team? Or were there any challenges with that set up?

Duncan Graham
So at the time it felt the right thing to do. Renishaw are a major engineering company, they have significant revenues, they make some of the best Raman spectrometers in the world, and we were using Raman spectroscopy as our detection technique for the science. And we know that the majority of any clinical, in fact almost all clinical testing labs would not have a Raman instrument. So we knew they needed to have a Raman instrument before they could accept our technology. So it seemed like a good match that we would go with an engineering company who could make those instruments, make the hardware that would supply the testing laboratories with the capabilities that they needed.

Sarah McLusky
Yeah, oh well. And so it worked out in the sense that the company operated for a period of time. What was the story after you got things off the ground then?

Duncan Graham
Well, that's where it gets a bit more complicated because we started off down one avenue of a target. We were going to do some sexual disease testing, looking at a multiplex assay for chlamydia and gonorrhoea. And we started down that route. And then we realized that there was significant market presence from really large players, like your Roches and your Becton Dickinsons. And for us to come in and be disruptive in that already saturated market was going to be really, really challenging. So we spent a bit of time trying to understand where we did have an opportunity in terms of bringing in a new capability to an unmet need in that clinical testing market. And that's where we came up with the fungal testing, which is where we pushed most of our efforts. So that was testing for fungal infections in hospitals using a multiplex DNA testing assay.

So we would be looking for classification of different fungal infections which were deep seated and were very, very difficult to get rid of and could be potentially fatal in some cases because the most effective treatments are only about 50% effective. So it's a real problem when you have a deep-seated fungal infection, particularly in hospital and immune-compromised patients. And we were trying to line up our tests so that we could link it to the therapies which would be administered in the end.

So instead of trying to speciate exactly what that was, it would be, could we link the detection diagnostic to the treatment that would then be administered? So it might be a drug against Aspergillus or a drug against Candida. So that's where we went with the science. Behind that, we were employing people because we needed new capability. We moved into our own bespoke premises, which we kitted out to cover microbiology, sorry molecular biology, fabrication, packaging of kits, etc. We got up to 42 FTE in this in these premises. That costs money. We had to take some more investment from Renishaw. They were the only people who were investing into the company. At that point though we still had leaky IP.

Sarah McLusky
Right.

Duncan Graham
So you may have recalled that earlier in the conversation before we spun out, we'd been working with other companies. We'd been creating license deals with them. And some of the clauses in those license deals allowed them to sub-license our IP to other parties. And it took us quite a while to shore up the IP situation and get that into a nice consolidated package, which we then, at that point it was owned by the university, we were then able to offer that to D3 technologies as the IP package.

And at that point, we were asking for more investment from Renishaw and they felt it would then be appropriate to consider a name change from D3 technologies and also to make it a subsidiary of the Renishaw group. So it became Renishaw Diagnostics. I think it was about 2010 of memory serves that we did that name change in the next round of investment.

So we were pushing on with the science, shoring up the IP. We were also trying to manufacture let's call it something a bit more abstract, some substrates that you could do other measurements with so it was a complete sideline to see if we could generate some revenues in the meantime while we went for clinical accreditation of the main product.

Sarah McLusky
So it sounds like, goodness me, you've got a lot going on there all at one time with all these people and these different kind of products and things like that. You've said there you took a pivot with the science. Was that quite a straightforward pivot to go from looking from sexually transmitted diseases to fungal infections or?

Duncan Graham
The technology remains the same, but the biology changed. And the biology was actually quite complicated, and that's where a lot of effort went in, in terms of getting the biology right. Then we had to work out how we could translate what we would do in the lab as expert SERS users into the hands of a clinical laboratory. So we started to invest in robotic systems for liquid handling.

We also had one eye on the future, because the assay we patented was back from 1997. We haven't changed anything really since then, and this was like 12, 13 years later. So we are thinking, how can we update our technology to make it keep pace with the current developments that are going on within that sector?

So the relationship moved from, I guess, the company became quite self-sufficient, and it was running itself. From the academic engagement, then you had myself and Karen as the academic still at university, we became much more involved in the next generation of the potential product pipeline and for that we secured, as it was then, TSB funding, now Innovate, that allowed us to run a three year programme with the company with an academic focus on getting the basic research done, which would look into the next generation of product for the company. So that was the relationship that started to develop with the university and with the spin-out Company which was quite fruitful actually.

Sarah McLusky
Yeah, so it sounds like, you know, once you get one thing into sort of almost production, you know, getting it into that actual delivery stage, you always have to be going back to the science and thinking about what's the next thing coming through.

Duncan Graham
Absolutely, however, I wouldn't say we were into production

Sarah McLusky
Okay.

Duncan Graham
because there are lots and lots of challenges in terms of which market you look at, how you get your test accepted and validated and this was something we did not fully understand when we went into this and in fact it took us a lot more time, effort and finance to get a CE mark on our assay than we'd considered. And even then when we had the CE mark, to get that accepted as an approved test that the hospitals would buy and buy in volume was a real, real challenge that we didn't really actually overcome.

Sarah McLusky
So what were some of the steps and things that you had to go through?

Duncan Graham
So that's where the joy of having a full-time compliance officer within a company comes in because they have the responsibility for working out what needs to be done, the documentation that needs to be provided, the rigor that needs to be put into testing a fridge for over six months that it holds the temperature and it doesn't change so you can see your reagents are actually genuine and they haven't been affected. 

So there was a lot of work going on within the company in terms of the standardisation of the science that was being done. It was locked in, everything had to be locked in, finalised. Then we had to run hundreds of samples for verification, validation. Then we had to submit more paperwork, get accreditation. So it was a lot of work, a lot of effort.

Karen Faulds
And also getting it into different hospitals to get on-site testing as well, so the amount of cost validation, you know, preparation to get get it into the clinical setting is also very challenging. And all of this is just so expensive to bring, you know, a clinical diagnostic to market. It's just a huge hurdle financially.

Sarah McLusky
And is it particularly difficult in that clinical setting just because of all the hoops you've got to go through? Or is this common in other industries?

Duncan Graham
It’s accreditation for any new test. You've got to go to the gold standard and show you have at least comparable performance against the gold standard depending which sector you're moving into. But the medical diagnostic sector we were moving into was challenging. It did have significant levels of accreditation. We looked at Europe first. We were still in Europe at that point, so we went for the CE marking. We looked at FDA approval and that was going to be another level scrutiny and paperwork and effort and cost. So we didn't go down the FDA approval route in the end, we focused very much on the CE marking. As Karen said, we ended up having systems placed in five hospitals across Europe for testing, but we were paying quite a lot of money for those tests to be run and to get the data to allow us to then use that data to say, hey, look, it works, and this is how well it works, et cetera, with a view that then they were going to pick up and take these tests and then make this a financially sustainable assay and product.

Fungal testing was important, but it wasn't a massive market in terms of the number of samples that were going to be run every year. And when you get to a point where you've spent a lot of money and then you can generate, you can speculate how much you're expecting to get back and you need to make those lines start to cross at some point, so you move into surplus generation or profit in a company. And we felt that the fungal testing was probably not going to do that. So we came up with new tests. So we started to move into gastroenteritis where there was much higher volume of testing, but that was more challenging again, because we had to go back and redo the biology because the DNA behaved differently. So it always felt as though there was just within grasp but never quite getting there.

Sarah McLusky
Hmm, that's what it sounds like. Everything you've talked about, even all the way up to this point. I mean, in terms of time, where are we in the timeline of the company? How many years had this been to get to this point?

Duncan Graham
So we're probably seven or eight years at this point.

Sarah McLusky
Yeah, and is still not got something that you're selling. Yeah.

Duncan Graham
We're selling some very bespoke, specialised substrates with interest to the research community. It's certainly not providing revenues which are propping up the company when you've got that number of employees.

Sarah McLusky
No, yeah. And so, what then? Where does the story go from there?

Duncan Graham
Well, obviously we were enthusiasts as the inventors of the science and having worked on that technique for a long time and still continue to work in this sector, we wanted to try and make it work but we were starting to realise that we were facing probably insurmountable barriers to actually make this a financially viable product and the decision was taken in 2016 that we would cease to operate as the company was and we'd look around to see if anybody was interested in taking on the technology or parts of the technology. And that's what happened at the end in 2016. There was a part of the technology that was taken on by another company.

Sarah McLusky
I think it's really sobering to hear just how much goes into getting to that point. And I imagine it must have been a very sobering moment for yourselves as well.

Duncan Graham
Well I think the other part is because this is quite a specialist technique, there's not many people doing it, so there was an entry to market barrier and acceptance that we were also aware of. But also having skilled people who could work in the company. A lot of our former PhD and postdoctoral researchers from our research group ended up working in the company. So when you realised that the company was no longer going to continue in its current form, you really did get quite concerned in a very stressful time about what would happen to them when this company ceased to operate in the way that it was because finding specialist jobs of that nature is not that easy and that's what they were doing. Fortunately I think most people have managed to move on to other jobs or stayed within the company that took over but yeah it was a not a pleasant time.

Sarah McLusky
No, I can imagine. Looking back on it now, though I imagine there are things that you feel you've learned from that experience. So what do you think are the biggest things that you've taken away from it?

Duncan Graham
The biggest thing for me, and I'll let Karen talk for herself, but the biggest thing for me is really understand the market you're going into and get that market pull identified for your technology and your product. We were a technology pushing into different markets and that was really tough. What we need to do is make sure we have a market pull and then the technology can be molded to that market need. That's the only way I think we can ever be financially sustainable with the technology development.

I also learned that I am very much an academic. Although we want to see our technology translated into impact and societal and economic benefits, that's not what floats my boat and I think I'm best staying in academia. That said, we will dip our toes back in the water again in terms of trying to make sure we realise the impact, because a lot of our work is publicly funded and want to make sure we can use that to benefit society wherever we possibly can. And we have learned lessons. So that's my point.

Karen Faulds
I think I'd say the exact same as Duncan and perhaps rephrase it a little bit. But it's the same thing. I think we were technology looking for an application and really good technology, but we didn't quite have the application that was going to pull it through to, you know, high, high value. And as Duncan said, we're, you know, considering another spin out company in a different area where we definitely have the need being the pull for the technology now.

And I think it's taken me a long time to even perhaps consider spinning out another company again because I think and Duncan again it's reiterating what he said but when the previous spin out company ended my main concern was the people that were employed in it and you know it kind of takes a lot of thought to actually go back down that path again because you're bringing people with you, you get people invested in working for the company and if it doesn't work out it's like ensuring that they have somewhere to go after it. And you know that part for me took a bit of time maybe to go over and you know for me to consider you know going down that path again but I think, yeah, I think we're in a different position now and knowing more than what we did the first time round.

Sarah McLusky
Yeah, I think that's all any of us can do, isn't it? Is learn from our experiences. And either when you were going through the process last time or perhaps as you're coming to now think about doing it again, is there any particular support that's been really valuable to you? You've mentioned IP, you've mentioned a compliance officer, you know, these roles, are there any particular things that have been really helpful to make, to getting you the progress that you did?

Duncan Graham
in the past or in the future.

Sarah McLusky
in the past or in the future or where you are now, yeah, maybe things have changed.

Duncan Graham
Things have changed without a doubt. In the past, it was a different process to spinning out a company, certainly within our university. Now we have a very structured approach to spinning out. We have a gated process, which is very clear what's expected of you at each stage. You're given support and some financial support from the university to go through these different stages. And it's really clear what you need to do and how you have to reach the next stage in the gate and you're given a lot of support internally and then externally people are brought in to help you.

So I think for me the support round about us within the university is excellent and I can say we have 10 current spin out companies in the Faculty of Science with an investment value of over 55 million that are current right now.

Sarah McLusky
Goodness.

Duncan Graham
So I think the university's actually got the structure right in current times and the environment is right. There are going to be failures, of course there are, we had a failure, but you learn from those and you dust yourself down and you try and move on. So the support from the university is absolutely valuable.

The latest venture which we're looking at actually, the market contacted Karen and said, have you got a technology that could maybe solve the problem here? So again, that interaction and engagement has really helped us think about will we do it, will we not do it? It gives you a bit more confidence this time that someone there saying, our market needs this. You guys have got something that can do it. So that relationship has been really important as well.

Sarah McLusky
Yeah, interesting. Sounds like more of a two-way conversation now as well. Yeah.

Karen Faulds
Yeah, and it means the market has been involved in some of the research phase of it as well, so has been involved in the development of the science and the direction that the fundamental science is going that sits behind it. So there's been a lot more of kind of testing and understanding we need this time, or that we jump if that makes sense and we're understanding that also that our technology already is a fit for the market that we want to put it into.

Sarah McLusky
Yeah. And it sounds like, well, Duncan, certainly you've said, I don't know, perhaps if it's the same for you, Karen, but you said that you feel that you're very much an academic rather than the entrepreneur. How do you merge those two parts of your identity together? How do you balance those responsibilities? Again, perhaps how did you in the past or how is it different now?

Karen Faulds
I think, I mean, it can be challenging at times because you've got two jobs to do. And I think it's challenging at this stage because you're, you know, you're trying to do your day jobs, finding research funding, but also trying to explore opportunities of, you know, funding and the potential spin out and interaction with various people.

So I think this is probably the of the challenging phase of just balancing that time. Because obviously you need to be involved in those early stages to get off the ground. But as Duncan has also said, I see myself as an academic and I'm happy to do that initial push off and be involved. But it's not something, you know, once you've kind of like the bird out of the box, hopefully I'll be able to take off on it own.

Sarah McLusky
Yes. Oh well fingers crossed. And has your idea of what it would mean to succeed changed? What you're saying there suggests that perhaps it has but...

Duncan Graham
I still think the biggest success would be seeing research, which you've done in your laboratories with PhD students, postdocs that you've conceived of conceptually, being used in a situation which is benefiting either society or a company through its ability to make the world a better place. That sounds rather grand and, a bit motherhood and apple pie, but really it's just seeing that research going out from the laboratories and being used and making a difference to society and hopefully the economy.

Sarah McLusky
Yeah, that's, it's good to know that still that ambition is still there, that vision is still there and you haven't been put off by it. So that perhaps is a good place to see if somebody else is thinking about following a similar path. What advice would you give them?

Duncan Graham
Find someone who's done it before and speak to them. Definitely do that because the more advice and testing of your thoughts that you can do, the better you're gonna be in your decision making. And that's where I think this gated process I talked to you about from a university perspective is really helpful because we get that environment where there's been a lot of other spin outs going on, some very successful, where we can learn from the people who've done it and how they've done it and gone about it. And it gives you the confidence that can work and it can be done. And you just have to then transpose what they've done into your situation and scenarios and try and make it work. So the advice I would give is certainly speak to other people who've done it before.

Sarah McLusky
Yeah. And Karen, would you add anything else to that?

Karen Faulds
Well, that would be also speak to the potential end users to make sure that you are actually selling a technology that the world needs or not trying to tell them they need this and they don't really because, you know, it's always the same. If you use a clinical example, you know, it's quite often a lot of technology of trying to push into that clinical market but have you actually spoken to a clinician and said well actually how would this impact your, the treatment pathway that's a good example and they go well actually wouldn't make that much difference if i get a result an hour earlier it actually wouldn't make any difference because of the way the pathway so i think actually really talking to the people that might be using and the technology at the end of the day is actually really important at the early stages because it could be you can adjust something to accommodate or you're actually looking at the wrong market or the wrong target that can be changed.

Sarah McLusky
Yeah, both excellent pieces of advice, I think.

Well thank you so much for taking the time to have a chat with me. That's been so interesting. Thank you.

Duncan Graham
No problem at all.

Karen Faulds
Thank you.

Podcast Outro
If you’ve been inspired by this podcast head over to our LinkedIn page and tell us about your biggest takeaways. You’ll find a link in the show notes or search for Academic Adventures podcast.

This podcast was a collaboration between the University of the West of Scotland, Converge and Sarah McLusky. The podcast team includes Orla Kelly, Adam Kosterka, Jen Black and me, Sarah McLusky. The Academic Adventures Podcast is proudly supported by the Scottish Ecosystem Fund 2023-24.