IT HAS been a tough two years for the UK’s biotech sector. After a period of digging deep into its reserves of stamina and nerve, will a stronger, fitter industry emerge ready to take on the increasingly fierce global competition?
The race to develop new drugs continues to hot up. The goal is a new treatment for one of the scores of medical conditions that so far lack any drug therapy, and companies continue to invest massive sums in the search. But even after the 10 to 15-year journey from discovery to licensing, there is no guarantee of success. Failure rates are high, and failure can be fatal for aspiring companies.
These high risks, however, are matched by potentially massive rewards, and on the face of it the UK has a good position in the race. Its biotech sector is second only to the US and is the most mature in Europe. The UK is home to some 280 private and 48 public biotech companies, generating annual revenues in the region of £2 billion. These companies spend more than £500 million on R&D annually and employ around 23,000 people – but only seven are profitable.
As large as these sums are, they are dwarfed by the biotech sector in the US, which generated revenues of more than $30 billion in 2002, employing around six times as many people as the UK sector and spending about $16 billion on R&D. The global leader, California-based Amgen, is worth over $82 billion – considerably more than the entire European public biotech sector. The largest UK biotech, Slough-based Celltech, is a minnow by comparison, valued at around £1.1 million (about $2 billion), and is still some years away from launching its first in-house biotech product.
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Now more than ever, the focus is on products rather than promises, and here the UK has great potential. More than 200 products from public companies are undergoing clinical trials, and about 80 of these are in phase II testing or beyond. This is encouraging, but there are concerns that a high proportion of them are “orphan drugs” – those that target conditions affecting fewer than 5 people in 10,000. Their correspondingly small sales potential is not enough to attract investors away from the US, where potential blockbusters exist.
The gulf in punching power between the US and the UK shows the massive challenges ahead, not only for fledgling university spin-offs but also for the larger biotech companies. But it is not simply a case of the UK versus the US. Each company and research lab is fighting its corner in a global arena, and many countries strenuously promote their bioscience industries. Some are given a better start than others, and strong investment is key.
While the UK biotechnology industry averaged more than $200 million of annual venture capital investment over the last few years, many companies have been struggling to survive against the backdrop of risk-averse investors who got their fingers frostbitten in the post-2000 market freeze.
But last year saw a new lifeline for some companies. In August, venture capital investors Abingworth Management launched a $350 million fund to invest in biotech and medical companies. But cash is still hard to come by, and biotech CEOs are spending more time on the road chasing their next funding round. With the average deal currently taking almost two years, by the time they have raised the cash, they need to be planning their next funding tour.
Their US counterparts have an easier task. Investors in the US have been around the block a few more times and have a more forgiving attitude towards the difficulties encountered in the industry (Â鶹´«Ã½, 24 January, p 50). Strong share prices and easier roads to raising capital have put US companies in a good position to hunt for bargain European companies.
So the fate of many British firms may well be acquisition by a US rival. Last year the profitable vaccine player Powderject was acquired by US giant Chiron; and Amersham, the UK’s largest healthcare company, was bought by General Electric of the US in a $9.5 billion deal – the biggest healthcare merger since GlaxoSmithKline formed in 1999. Towards the end of the year there were rumours that Swiss heavyweight Serono was to make a move for Celltech following Serono’s $460 million bond issue. This was compounded by rumours that Serono might itself be swallowed up by a big US player.
The action is continuing this year. Last month Oxoid, the culture media and diagnostics company in Basingstoke, UK, was acquired by Fisher Scientific, based in New Hampshire. In the same month, Cambridge-based vaccine company Acambis – one of the UK’s few profitable biotechs – announced that it was closing its UK research set-up and transferring it to the US.
Despite the recent gloom, the UK sector still has much to shout about, as investors continue to back the most promising companies. UK firms attracted some of the largest European venture capital funding rounds last year, including immunology player Lorantis in Cambridge ($42 million); London-based anti-infective company Arrow Therapeutics ($34 million); Dundee-based cancer specialist Cyclacel ($34 million); and reproductive health company Ardana Bioscience, in Edinburgh ($32 million).
Among the publicly quoted UK biotech companies Oxford BioMedica, specialising in oncology and neurology drug discovery, raised $35 million in September 2003. And one of the most promising UK companies, Cambridge-based Alizyme, which focuses on treatments for obesity-related diseases, raised $19.2 million through a share issue in October. Slough-based Xenova raised $36 million in November, allowing the company to finance phase III trials of its most advanced drug TransMID, a modified diphtheria toxin to treat a type of brain tumour. Oncology player Antisoma, in London, hit the headlines late in 2002 on the back of a high-profile alliance with Swiss-based Roche, and has looked good ever since, raising $26 million in 2003 despite a relatively good cash position.
The UK government, recognising the importance of the biotech sector to the economy, has investigated the issues facing the sector. A recent report from its biotechnology innovation and growth team recommends a raft of measures to support the industry, from ways to speed up the approval of new drugs to legislation aimed at curtailing the activities of animal rights extremists.
In the long-distance race of drug development the US is out in front and fast increasing its lead from the second-placed UK. Support by the British government will go some way to closing the gap, but bold moves by CEOs and investors will be needed for the UK to stay in the running.
