Last month, the “London Biotechnology Network’s Sixth Annual Genesis Conference” took place amid concerns that too many U.K. biotechs are being bought out by their richer U.S. counterparts. Christopher Evans, DSc., founder of Merlin Biosciences, one of Europe’s largest specialist venture capital companies, directly addressed the issue.
“Europe has a historic inability to raise funds, which leaves many companies with too little finance,” he said. Public funding for biotech in Europe has returned to pre-2000 levels and there is limited follow-on finance. “Levels of activity in Europe have never really taken off.”
In the U.K., it looks as if financing for biotech has reached its saturation point—even though there is sufficient capital in London alone to give much more. There is also a tendency for management to act locally, rather than globally. For these reasons, the U.K. and Europe have opened themselves up to U.S. buyers.
Examples of recent U.S./U.K.buyouts include Celldex(www.celldextherapeutics.com)/Lorantis, Pfizer(www.pfizer.com)/Powdermed(www.powdermed.com), and Gen-Probe(www.gen-probe.com)/Molecular Light Technology(www.mltresearch.com). Dr. Evans believes that a number of U.K. companies in the Merlin Biosciences portfolio, such as ReNeuron(www.reneuron.com), Vectura(www.vectura.com), and Plethora, may end up in the U.S. too. European giants are also carrying out U.K. acquisitions such as UCB(www.ucb-group.com)/Celltech, AstraZeneca(www.astrazeneca.com)/Cambridge Antibody Technology(www.cambridgeantibody.com),Novartis(www.novartis.com)/Neutec and GSK(www.gsk.com)/Domantis(www.domantis.com).
To retain their independence for longer after an IPO, Dr. Evans maintains that companies must get better, i.e., have products close to market, good Phase II data, a pipeline, a position at least close to cash-positive, excellent management, deals, and strong science and IP.
“If you can keep all of this going for at least a decade, the shareholders will back you. If two or three of these things don’t get done, then you will have to sell,” he pointed out.
Need to Create Value
For IPO follow-on success, there must be a flow of results and product launches to create value in the minds of investors. VCs should be cut loose as early as possible, and companies must turn to those with deeper pockets for support. In short, all stakeholders must do more. Pharma should continue doing deals and give direction to biotech, VCs could be less risk averse and should manage companies’ cash-burn rates, CEOs ought to think more globally, and institutional investors should invest only in quality IPOs.
However, there are some signs of improvement in Europe. The IPO market is picking up, with Wilex(www.wilex.com), Santhera (www.santhera.com), and Newron(www.newron.com) going public and follow-on offerings from NicOx(www.nicox.com) and CeNes(www.cenes.com)Entelos(www.entelos.com) and Bodisen(www.bodisen.com) show the increasing success of the Alternative Investment Market (AIM), which is the London Stock Exchange’s (LSE) international market for smaller growing companies. In addition, pharma-biotech collaborations seem to be on the increase. “All of these are signs that companies may not need to sell to the U.S.,” said Dr. Evans.
U.K. biotechs looking to grow to critical mass and maintain their independence might look to the example of Amgen (www.amgen.com), which recently celebrated its 25th anniversary. Out of 1,800 U.S. biotechs that have been created since 1980, Amgen is one of only six that made more money than it spent, according to Jeremy Haigh, Ph.D., head of European R&D at the company.
Amgen started out with two successful products, EPO® and Neupogen®, but refocused on its pipeline in 2000 and has since had a steady stream of product approvals such as Enbrel®. “Recruitment and retainment of world class scientists and significant R&D are critical to Amgen’s success,” noted Dr. Haigh. “We are now expanding internationally into Latin America, India, and China.”
Part of Amgen’s philosophy is a true focus upon serious illness. “It may sound obvious, but companies often get distracted from this,” according to Dr. Haigh. The company also believes in independence of modality, so, although it is best known for protein therapeutics, it will consider nucleic acids, small molecules, or peptides.
“What is important to us is hitting the target—we don’t mind how we do it,” Dr. Haigh explained.
Finally, as Amgen has grown—to 20,000 staff worldwide and a market cap of $80 billion—they have taken the risks of success on board through their organizational culture, central to which is retaining the spirit and values of a smaller company.
Amgen has made the transition from a narrow focus company to a more broad-based one. Could this have happened in the U.K. or Europe, and can this happen now? Amgen may have had some luck, unique circumstances, and the U.S. environment.
“The U.K. does have the science and they are starting to get the environment right. Although no one can predict another Amgen, we should try to create the environment for a similar success,” concluded Dr. Haigh.
Agreements Are Critical
Deals are central to biotech, and negotiation is the key to a successful deal. According to Charles Macfarlane, retired executive director of alliances, licensing, and acquistions at Proctor and Gamble, negotiation is usually more of an art than a science.
“Few people are master negotiatators,” he said. “Even fewer are good at cross cultural negotiations.”
At least 90% of problems in negotiations come from one’s own side, and it is critical to know and understand your objectives and align your team with them. Transparency is desirable (although something should always been kept “in your pocket” to give away) as is agreement on major assumptions between the two parties to the negotiations. If necessary, third party, impartial data should be paid for and mined.
Cultural differences influence behavior and relationships both during negotiations and after. In pharma, the long-lasting deal with the ongoing relationship is the norm—and it is important to imagine the consequences of failure of, say, a Phase II drug at an early stage. “Negotiation is not really about winning. It is the art of meeting the other party’s and your objectives in the same deal space,” said Macfarlane.
Managing partnerships is the mission of London Genetics. Headed by Nick Lench, Ph.D., former director of the Wales Gene Park, London Genetics is formed from a consortium of seven of London’s leading hospitals and medical research institutes. It intends to generate and manage collaborations in genetics and genomics applications between its researchers and biotech and pharma companies.
“The vision for London Genetics is to offers its customers a gateway to London’s world class genetics and genomics capabilities through its partner institutions,” said Dr. Lench.
Finance is a continuing concern for biotech companies located in London and elsewhere in the U.K. Andrew Wallace, product manager for the U.K. Main Market at the LSE, discussed the issue of selecting the right market for an IPO in terms of your company’s track record and size and the conditions the market can impose. The LSE competes well internationally in terms of numbers going for IPO there and money raised as a result, he said.
In 2005, there were 14 bio/pharma IPOs on the LSE’s markets, which raised £292 million (approximately $572 million). By way of comparison, there were only 17 bio/pharma IPOs in the U.S. over the same period, and the IPO funds raised in London in 2005 represented 77% of the total European money raised in the sector.
The AIM is attractive to some biotechs seeking to raise funds through an IPO as it does not require the companies to have a track record or minimum size requirement. Six percent of companies on AIM are in the life sciences sector at present. The LSE Main Market needs a three-year track record for a company and a market cap of at least £700,000 (approximately $1,370,000).
Within the Main Market, there is TechMARK and TechMARK mediscience, which put a specific focus upon technology and life sciences; for certain companies, a listing on either of these may give a higher profile and get more investors’ attention.
Life Science Clusters
With science, deals, and finance, a location may be able to build a biotech cluster. London, Oxford, and Cambridge are the U.K.’s leading clusters (some consider the three together as a kind of “supercluster”). Bill Fair, managing director, healthcare and biosciences, for New York City Economic Development, shared his thoughts on building a biotech cluster.
“We have come across several challenges in establishing a cluster in New York City,” he explained. These include the perceptual challenge—convincing people that the city does indeed “do” biotech—and the problem of how to obtain the necessary real estate. There is also a need to build an entrepreneurial infrastructure within which viable biotech companies can actually grow.
One should also be aware of what is going on in neighboring clusters. In the U.S., this means Boston, with 490 life science companies; San Francisco (720); San Diego (500); and Research Triangle Park (300). Although New York only has 170 life science companies, it’s the second largest recipient of NIH funding in this group, which is a sure marker of its cluster potential, according to Fair.
He lists “world-class science” as one of the key criteria for a bioscience cluster, along with access to talent and funding, quality of life, lab and office space, inter- and intra-institute collaboration, a network of support services, access to patients and markets, and, maybe less important, tax incentives.
New York City already has many of these attributes but has a need for more funding for early-stage companies, more lab space, and a more entrepreneurial environment, Fair emphasized.
“We are facing significant challenges, and to put ourselves on the map, we are calling upon as many companies as possible and creating a point of contact that makes it easier for them coming in,” he reported.
Ranking the U.K.
An expert panel discussed how the U.K. scores as a location for R&D. Sanjay Kakkar, M.D., CEO of cardiology company Trigen, (www.trigen.co.uk) pointed to Domantis and Powdermed as successful U.K. startups, which showed what could be done with the right mix of good ideas, people, and technology.
Financing a startup has become easier, recently, but follow-up funding continues to be a problem. Ian Gibson, Ph.D., an MP who chairs the All Parliamentary Group on Cancer, said that the new National Institute for Health Research will at last see the Department of Health and the Medical Research Council working together to bring innovation to the National Health Service. “This is just the beginning. Academics will now have to interact more with industry,” Dr. Gibson noted.
Ken Powell, CEO of Arrow Therapeutics(www.arrowt.co.uk), added that VCs could help boost U.K. biotech by being more visible in high-risk areas.
All agreed with Margaret Parton, life science specialist with the Department of Trade and Industry, that education and training are a must if the U.K. is to keep its place as a key location for biotech R&D. This means improving science teaching in schools and enthusing young children about taking up life sciences and biotech as a career.