On the cusp of a UK biotech boom

Humira, used to treat rheumatoid arthritis, is one of the best selling drugs of all time, totting up revenues of $64bn. It was based on breakthroughs in monoclonal antibodies made in Cambridge during the 1990s. One of the leading researchers, Sir Gregory Winter, explained that:

Biotech

Humira, used to treat rheumatoid arthritis, is one of the best selling drugs of all time, totting up revenues of $64bn. It was based on breakthroughs in monoclonal antibodies made in Cambridge during the 1990s. One of the leading researchers, Sir Gregory Winter, explained that:

Our inventions originated from pure curiosity and long-term basic research… Provided such research is intelligently exploited, it can pay handsome dividends for medicine, UK industry and human health. It can also generate considerable royalty income, which ploughed back into science will help generate the medicines and industries of the future.”

All of which is true… except for one thing.

Humira did not pay especially ‘handsome dividends’ for UK industry. The drug was bought by the USA’s Abbott Laboratories in 2004 and most of that $65bn has landed in bank accounts on the other side of the Atlantic.

This story neatly illustrates both the excellence of UK science and our failure to exploit it. As a new biotechnology boom gathers pace, will it be different this time?

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Light summer reading

Before heading off for my summer holiday I read three weighty reports. From the The UK Bioindustry Association, ‘A 10 Year Horizon – 2014 and 2015 Setting New Records in UK Biotech Financing via Capital Markets and Venture Capital’; from an All-Party Parliamentary Group ‘The UK’s Contribution to Health Globally – Benefitting the Country and the World’; while the Lord Mayor of London’s office contributed ‘London as a Test Bed for Innovative Models of Finance – Maximising the Economic Impact of Life Sciences Research and Development.’

Between them these papers place the UK’s biotechnology industry in a global context, describe ways in which we might exploit its strengths and ensure that the rewards of any future Humira stay in the UK.

I have been predicting a revival of UK biotech ever since I started writing this newsletter. It has taken a while for UK investors to follow the lead of their counterparts in the USA but the ball is now rolling.

The British Biotech Association is enthusing. It describes ‘a huge wave of optimism sweeping the UK biotech sector.’ Biotech companies raised £408m through stock market listings in 2014, more than the previous 8 years combined (although the year 2005 raised £279m alone). A further $430m was raised from venture capital investors, the best for at least 10 years. Investors are latching on to the BIA’s ‘two fundamentals’ – an ageing population in need of new therapies and the potential of genetic and biological science.

The BIA also has figures that show the UK putting more venture capital money into biotech than any other European country. The $2,394m fed to the industry in the last decade beats Germany’s $1,983m Switzerland’s $1,600m and France’s $1,164m. But this is still chicken feed compared to the colossal USA equivalent figure of $36,983m, and this is the comparator that really bothers UK industry.

The home of medical science

Nobody doubts the level of scientific expertise in the UK. Oxford and Cambridge, Imperial College and UCL are amongst the top rated universities for medicine. Numerous other research organizations such as the Sanger Centre, the Babraham Institute and the London School of Hygiene and Tropical Medicine, to name but three, are leaders in their respective field.

The UK is an attractive place for medics from overseas, we have numerous charities that support medicine both at home and overseas, and through these and other international agencies we have excellent connections throughout the world. With the benefit of the English language we publish two of the top four medical journals – The Lancet and The British Medical Journal – while Nature magazine is the top ranked science journal. Add in the public asset that is the National Health Service and the UK has all the ingredients to be a world leader.

The All Party Parliamentary Committee has a rather evangelical view of the possibilities. It thinks that the UK can be a beacon of excellence in global healthcare, exporting its knowledge of healthcare systems and treatment, promoting good health and disease prevention, ’working on global health in a spirit of mutual learning and co-development’ and generally spreading the benign influence of Britishness through the common global aspiration for good health. This is all a bit airy-fairy but is nonetheless a reason for the Government to maintain its backing of British science.

America’s Advantage

Of more practical interest for investors is the need for industry funding. Medical progress is time-consuming and very expensive and USA is seen to have an advantage not just in terms of the amount of money flowing into biotech, but the motivation of its providers.
Whereas UK investors are seen to focus on the likely financial return, discounting very heavily any promises that stretch into distant years, US money is more philanthropic. Bill Gates and others can well afford to spend billions on health projects regardless of financial returns, US universities are famously well-funded and US companies with nothing more than an early stage research project can raise tens of millions of dollars.

The report from Boris Johnson’s office identifies some of the problems. Companies find it hard to cross the ‘Valley of Death’ between proving a concept in the laboratory and actually taking it into clinical trials. Investors don’t like the high risk of early stage work, but don’t have the cash to support a drug that has been de-risked entered extensive final trials. To make it harder the landscape is changing all the time. Health authorities are under financial pressure, new approaches based on big data, stratified medicine, genomics and digital health are rewriting the future, patent protection for new molecular based approaches is uncertain and new targets such as the neuroscience are fraught with difficulty.

The Lord Mayor’s office suggests a few solutions, none of which make much sense. First it suggests that the financial wizards of the City could devise financing structures that allow for debt as well as equity – but with no certain future revenue debt holders could only be assured of repayment at the expense of equity holders.

Next it suggests that a ‘megafund’ of £200m-£10bn (provided by whom is left unspecified) could reduce risk by backing say fifty start-ups instead of just one. This is the equivalent of advising a racegoer to spread risk by backing every 25-1 shot instead of just one – thus ensuring he either loses even more money or wins less.

And finally it calls for ‘patient capital’ that will commit to a project for the long term, without seeking an interim exit. While this sounds worthy it will only make money if it backs the right projects to start with.

These are tough issues for the UK biotechnology industry, and they have existed for years. It is great to see the upsurge of interest in biotechnology. I am thrilled that people are finally starting to recognize a revolution based on deep molecular understanding of biology. I am delighted that investors, the Government, charities, universities and the Health Service are supporting industry. But we cannot escape the reality that biotechnology innovation is hugely risky. The average cost of bringing a drug to market has been estimated as high as $2.6bn, and no amount of clever financing engineering or patience can alter the fact that an awful lot of the money being thrown at medical biotech will be lost. So you and I need to steer a careful path. On your behalf, I am treading carefully.

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