"It all came about as a result of Roger and me talking over a quiet gin and tonic one evening, chatting about the world, the universe, and chemistry." That is how Steven Ley, British Petroleum professor of organic chemistry at Cambridge University, remembers the genesis of a Pounds 1.8 million deal with pharmaceutical giant Glaxo which will see the arrival of state-of-the-art laboratories next month.

It will be a sight to gladden the heart of every shivering science student studying at the dreary 1950s complex along Lensfield Road. But Professor Ley was not looking to Roger Newton, Glaxo's director of chemical research, to finance the modernisation of the sprawling chemistry buildings.

That project will cost Pounds 25 million, and Professor Ley contends that it is for government to come up with the cash. "It is not the business of Glaxo to be doing what the research councils should be doing," he says combatively.

Loughborough-educated Professor Ley, who transferred from Imperial College two years ago, is what Cambridge's estate management director David Todd-Jones calls "one of the new breed of academics". He acknowledges that he now spends "far too much time managing and not enough time doing my science", which he says is a fact of life given the paucity of government funding.

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But as well as being a prize-winning scientist inside the laboratory, he has proved no less successful outside, raising big bucks for big projects. Only last week the biological and chemical group, Ciba, announced it was giving him Pounds 2 million plus interest to spend over the next 12 years on his sythetic organic chemistry research team.

It is the hunt for new drugs that has prompted Glaxo, whose empire has been built on the success of the ulcer treatment Zantac, to turn to higher education As Michael Elves, director of group scientific affairs, says: "Very few drugs cure disease. Apart from antibiotics, they are all ameliorative. The big challenge that lies ahead of us in the next ten years is to shift from the palliative to the curative mode."

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To meet the challenge Glaxo has made a Pounds 9.4 billion hostile bid for Wellcome, is spending Pounds 700 million on a 40-hectare research establishment at Stevenage which opens later this year, and is investing millions in higher education.

Glaxo has paid Pounds 10 million for an "Action TB" project at Birmingham and London universities, endowed eight professorships at Pounds 1 million each and several research fellowships worth Pounds 2.8 million, and annually sponsors 250 PhD students and 150 postdoctoral students to the tune of Pounds 8 million. Cambridge, which Dr Newton thinks has "the best chemistry department in the UK", is the principal beneficiary, not only picking up Pounds 300,000 for ten PhDs and eight postdoctorates but also receiving Pounds 16 million for its Glaxo Institute of Applied Pharmacology, which was established in 1992.

The new chemistry facility will have six Glaxo scientists, including three on Cambridge PhD programmes. For Glaxo, it represents "a huge risk".

"In one way, it would be better to put the money on the National Lottery," says Dr Elves. But the collaboration is not simply about plotting the path to a medicinal El Dorado. As Dr Newton puts it: "Some of the best undergrads, PhDs and postdocs in the world will be seeing Glaxo, and when they come to think about a job, they might think about us."

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For Cambridge, the Glaxo labs offer students the chance to experience the highest-quality working environment, and to become acquainted with the ways of industry. There is also the chance for the university to benefit financially from any discovery.

Glaxo likes to hold the intellectual property rights, and has walked away from universities which have refused to let it do so. But Cambridge will receive royalties and have the right to ask for a reassignment of the patents back free of charge if they are not exploited.

Glaxo does not see it as an exploitative, one-way process. There is a term for that - "contractual" work - "and we pay good money for it," says Dr Elves. Collaboration is "a partnership".

Professor Ley agrees. "They have never seen me as somebody they can buy. It is just impossible. This is the right sort of marriage not the wrong sort of marriage."

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