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Aug 1, 2008 (Vol. 28, No. 14)

Is the U.K. Biotech Industry on the Skids?

Lack of Investment Is the Culprit, According to Those in the Know

  • If you listened to certain speakers at the recent ERBI “Cambridge Biopartnering Exchange,” it would seem as if the glory days of U.K. biotech are over. Only Abcam, a Cambridge-based research antibody supply company, was held up as a example of how U.K. biotechs need to be to survive. So what’s wrong?

    Many cited lack of investment as a problem, which means that many potentially interesting molecules and technologies are not being developed. Professor Sir Christopher Evans, serial entrepreneur and past champion of small biotechs, painted a gloomy picture. “In 2007 and 2008, lots of U.K. biotechs didn’t deliver, and investors did not make a return, so VCs are increasingly moving away from early-stage companies.”

    In fact, Merlin Biosciences, Evan’s own VC firm known for supplying seed funding, was recently transferred to Excalibur, which will provide cash to later-stage biotech and medical device companies.

    Andy Richards, Ph.D., a biotech entrepreneur, explained that, “In the U.K. today, it is a world of haves and have nots with biotechs. There is more VC investment activity than at anytime since the year 2000 but many small private biotechs have to find ways of raising cash other than VC financing or the IPO route, if they are to survive.”

    Peter Chambré, chairman at Alpharma API, warned, “The old model of three rounds of finance and IPO is pretty much dead in the U.K. right now.”

  • Where's the Money Coming From?

    According to Prof. Evans, U.K. biotechs must find buyers for their technology and not look to the city, as there is a lack of enthusiasm now for spending time understanding what makes a good biotech prospect.

    “Specialist biotech fund managers are on thin ground in the U.K.,” Kieran Murphy, CEO of Whatman, commented. “This is because for many fund managers, the U.K. biotech industry is too small in terms of market cap for them to invest their time getting to know it intimately.”

    Prof. Evans noted that, “The U.K. is not like the U.S. where investors will spend their way out of a crisis. I have seen good U.K. biotechs value their technology at 40 percent less than similar U.S. companies; it means that U.K. biotechs have to keep taking their eye off the ball to go, cap in hand, to raise money.”

    “Most big pharmas still have dry pipelines,” Prof. Evans continued. “With around 30 percent of the drugs on the market having come from biotechs and costing up to 50 percent less to develop, many big pharmas are still willing to pay for good technology.” Prof. Evans cited Piramed Pharma the Slough-based biotech acquired by Roche in April for $185 million, as an example of big pharma’s increasing appetite for all things biotech.

    Ian Kent, chairman of Argenta Discovery and formerly chairman of Piramed, added, “Piramed would not be valued by the public markets at anything like this, but PI3-kinase is an area of research that is interesting to big pharma at this time.”

    Two Cambridge-based biotechs that are thriving after being purchased by big pharma are Cambridge Antibody Technology (CAT), now MedImmune and part of Astra Zeneca, and Domantis, part of GlaxoSmithKline.

    Bill Bertrand, svp, legal affairs, general counsel, and corporate compliance officer at MedImmune, was positive about its future in the U.K. “We have 400 people at our two sites and we plan to recruit another 75 in Cambridge this year to allow us to move our U.K. antibody pipeline forward. Our focus at MedImmune is to produce 25 percent of AZ’s drugs.”

    “AZ’s original intention was to keep CAT as a separate entity developing therapeutic antibodies,” according to Chambré, ex-CEO of CAT. “When it bought MedImmune, however, AZ changed its mind as it could see the synergies between the two companies and then put them together. There is no doubt that CAT had a special top team and a combination of exceptional people and science. The leadership team at the time of the acquisition has now left, and so some energy within MedImmune in Cambridge may have dissipated. This could benefit the U.K., however, as these people are going on to repeat their successes at CAT, in other U.K. companies.”

    “Many smaller biotechs that have gone public in the U.K. are struggling, mainly with adverse investor sentiment toward the sector as a whole,” Richards added. “In the current climate it looks better for all concerned to keep these companies private and set up trade sales to increasingly hungry pharma companies.”

    “The fundamental ideas and science are good in a lot of U.K. biotechs so they need to out-license as much as possible to raise money, and if they can’t out-license, then they should be ruthless and dump the project as it is probably worthless,” Prof. Evans concluded.

  • No Role Models

    The flip side of having big pharma buy out the U.K.’s successful biotechs is that it has caused a dearth of good biopharma role models for U.K. start-ups to replicate. “We should have all the parts of the biotech cycle firing and we currently do not have the public part,” Chambré commented. “We’re in a strange place as big pharma’s need is currently so great, they are sucking up the good companies before they even have the chance to go public. While that is not a bad thing in itself, it would be desirable for the U.K. also to have a strong public biotech sector again.”

    “U.K. biotech needs massive investment, because, apart from Shire, we don’t have a good flagship company or blockbuster drugs in the pipeline,” Prof. Evans elaborated. “Yet, we need to have several more £500 million companies in the U.K. so we have something to aspire to, and perhaps there needs to be more out-licensing going on again to build these larger biotechs into bigger sustainable businesses.”

  • A New Money Source

    An area where biotechs could gain some much needed funding is by working more closely with large medical device companies. “With the advent of antibody therapies, siRNA, and gene therapy, we are very rapidly moving to a world of sophisticated localized delivery,” Tim Haines, a partner at Abingworth Management, pointed out. “Ten years from now, most devices will include a pharmaceutical agent, and they will need to access these from both pharma and biotechs. Likewise, the newer generation of biologics will require specialized medical device delivery approaches.”

    “Eventually, large device companies will look more like Amgen, as we will need to have biologicals in our devices,” added Stephen Oesterle, M.D., svp of medicine and technology at Medtronic. “The lines will be blurred, as it makes no sense to give systemic drugs to cure localized problems, and this is what we are currently doing with many drugs. Therefore, device firms must go from making gizmos to working with biotechs if we are both to survive, because we cannot grow significantly by just increasing market share. Our biggest challenge, however, is to work out the business model with biotech.”

  • A Glimmer of Hope for the U.K.

    Speakers at the “Cambridge Biopartnering Exchange” believed the U.K.’s biotech sector is in for a rocky ride over the next few years, as even the trend of big pharma buying up small biotechs will soon stop.

    “U.K. biotechs are entering the worst investment downturn since 2000–2001, and this will kill off many companies because 50 percent only have enough cash to survive for 12 months,” Prof. Evans explained. “Those with managers that don’t have a clue what they are doing and aren’t brave and bold enough to take advantage of as many financial sources as they can and partner out all their reasonable drug candidates and platforms, will not make it.”

    Prof. Evans is upbeat about the upshot of this. “What will emerge from this enforced cull will be a smaller pool of quality companies left in the game. They will thrive and help rebuild a much stronger and wiser U.K. biotech industry.”


Readers' Comments

Posted 08/05/2008 by Dr

We need to start addressing why the IPO market is closed and there are no specialist investors any longer: it's because the companies that have been financed have failed to yield a return for shareholders. These fund managers have since lost their jobs - hence no specialist investors. The quality of companies coming to market needs to improve and list on realistic valuations to then bring investors back to the sector.

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