British biotech: rebuilding momentum

pharmafile | May 26, 2011 | Feature | Research and Development |  UK, biotech, biotech funding 

Since biotech first emerged in the UK in the late 1980s, the dream has always been for the country to produce a world-beater in the field – an innovative company with groundbreaking products to match the success of America’s Amgen and Genentech.

But numerous factors have conspired together to prevent this, and today in 2011, the dream remains a distant one. But with renewed help from the UK government, and hugely exciting science in the pipeline, is there still hope the vision can be realised?

There are currently 345 biotech companies in the UK involved in drug discovery and development, but many of these are still a long way from bringing a product to market, and are living from year to year in terms of their finances. However, there are a handful of leading companies which have strong leadership, sound finances and promising drugs in development.

A lack of funding is the sector’s biggest obstacle. Funding from venture capitalists and share offers fell away after the credit crunch of 2007, and have never recovered to their pre-crisis levels. It is now widely accepted that funding levels seen in the last decade will not return, and new commercial models will have to emerge.

Failures and setbacks

The funding crisis was severe enough to send a few companies into liquidation, something more or less unheard of before in the sector.            

Cambridge BioStability, York Pharma, Alizyme and Intercytex all went into liquidation in 2009 after simply running out of cash, and failing to raise new funding.

Many in the investor community say that the biotech sector needed this shake up, in order to weed out companies with failing chief executives and poor business plans.

Of course biotech drugs remain vulnerable if their lead drug fails to shine in late-stage trials – it can mean the difference between survival and failure.

One of those companies that went into liquidation in 2009 has since been revived.

Intercytex opened its doors for business again in November 2010 – slimmed down and now a private enterprise rather than a publicly listed company.

The US Department of Defense is ready to fund trials of Vavelta, its cell-based treatment for use in injured soldiers.

The TSB is also supporting trials of Vavelta in scar patients at Queen Elizabeth Hospital, Birmingham, and the company plans to evaluate the treatment in a dystrophic epidermolysis bullosa, a rare genetic skin condition.

This work will be funded by TSB and the charity DebRA. Valvelta is designated as one of the first Advanced Therapy Medicinal Products by the European Medical Agency.

Another molecule which represented a significant failure included Antisoma’s phase III trial of its drug AS1413, for secondary acute myeloid leukaemia. This follows last year’s failure of AS404 for lung cancer, which was partnered with Novartis. These events leave Antisoma with a significant gap in its pipeline and an urgent need to cut back on expenditure.

Renovo was dealt a very serious blow in early 2011 when its scar reduction medicine Juvista failed in phase III trials.

Juvista (an injectable form of human transforming growth factor-beta-3) would have been marketed to prevent and reduce scarring. The market is worth $4 billion annually so this is a significant failure. 

Shire, Renovo’s commercialisation partner for Juvista, terminated its licensing agreement and has returned the rights to the drug in the US, Canada and Mexico, to Renovo.

The company is now making significant reductions in expenditure, including the loss of 100 employees, and a reduction in the size of the board. They will also halt recruitment into the ongoing Adaprev trial for improving recovery of tendon function in patients undergoing surgical tendon repair in the hand. There should be safety and preliminary performance data from this in H2 2011.

Meanwhile, the fully recruited Prevascar proof of concept trial in incisions and excisions of the skin in African volunteers, is to continue and will report in first half 2011.

Prevascar (recombinant human interleukin -10) has potential use in systemic fibrotic conditions such as lung fibrosis, and its market is similar to that of Juvista although its mechanism of action differs.

Renovo is left exploring options to maximise shareholder value of cash and assets, including possible sale of all its clinical and pre-clinical programmes. 

UK Innovation Investment Fund

To help address this funding problem, the UK Innovation Investment Fund launched its £200 million UK Future Technologies Fund in 2010.

This focuses on digital/ICT, life sciences and advanced manufacturing. This Fund has invested in Advent Life Sciences, which is dedicated to investing in early to mid-stage life sciences companies in the UK, Europe and the US.

Another significant measure is the Patent Box, a tax incentive offering a preferential 10% corporation tax regime on profits derived from UK research and development. The Patent Box legislation is to be developed by autumn this year.

Nigel Gaymond, chief executive of the BioIndustry Association, says his organisation is pleased the new government decided to keep the Office of Life Sciences (OLS) part of the Department of Business, Innovation and Skills, and is working with industry, academia and the NHS to improve the business environment – and may well deliver some benefits for UK life science companies.  

The Therapeutic Capability Clusters in inflammatory respiratory disease, and in inflammatory joint disease are the first stage in formation of a UK Life Sciences Supercluster, and aim to accelerate development of new medicines and attract investment by intensifying early stage collaboration between academics, clinicians, and industry. 

“There has been a good response from industry to the Clusters, which are an attempt to reverse the decline in clinical trials in this country and allow companies to reach go/no go decisions on drugs much earlier,” Gaymond said. 

Clinical trials could also benefit from the new stratified medicine strategy. Last October, the Technology Strategy Board (TSB) made over £50 million available for the Stratified Medicines Innovation Platform for R&D of medicines targeting smaller patient groups.

Initial focus is on tumour profiling in breast, lung, colorectal, prostate, ovarian and skin cancers, and on biomarkers for drug response in diseases of clinical and commercial importance to the UK. 

Government measures – Budget update

March’s Budget included a number of measures that should help UK biotech. For instance, the R&D tax credit scheme has been simplified and extended. Reform of the Enterprise Investment Scheme and Venture Capital Trust schemes should help to stimulate investment in bioscience companies. Meanwhile, the government’s commitment to regenerative medicine is underlined with the planned establishment of a cell therapy and advanced therapeutics Technology and Innovation Centre.

The centre should help speed up the translation of research to the clinical setting. There is also to be an £80 million injection of funding into national research campuses at Babraham (this one being particularly significant for biotech start ups), Daresbury and Norwich.

Other measures include a commitment to improving and simplifying the governance and regulation of medical research to shorten time to approval for clinical trials, and a report from the NHS chief executive on how to accelerate adoption and diffusion of innovations within the NHS. Meanwhile, there will also be new Translational Research Partnerships, building on the success of the Therapeutic Capability Clusters described above. The government has also committed to review the application of the Bolar exemption, which will provide additional clarity for industry when it comes to patent infringement. BIA welcomed all these measures and is looking forward to working with government on developing them.

UK biotech challenges

But companies also need tax incentives to grow, invest in partnerships, or locate here. “Tax credits should continue and expand for they are very much the life blood of our companies,” says Gaymond. 

Global competition is fierce and the UK urgently needs to promote itself as a location

“London is an important financial centre and this needs to be properly understood and remembered,” Gaymond noted. “London brings the world to us, and this gives us a huge competitive advantage.”

It was assumed that the UK biotech would be able to produce at least one Amgen. 

Instead, those companies who might conceivably have reached this size have been bought out by big pharma. A prime example is AstraZeneca’s purchase of CAT in 2006, which it then subsumed within another of its purchases, US biologics firm MedImmune.

Growth through mergers and acquisition

There are just a few UK biotech companies who have several established products on the market, and a healthy bank balance.

BTG is one of the UK’s best-known companies. “We are a growing international specialist healthcare company following our acquisition of Biocompatibles,” says Andy Burrows, director of Investor Relations.

The acquisition marks BTG’s maturity as a UK biotech company, cleverly combining Biocompatibles’ specialist products (such as embolising and drug-eluting beads with application in interventional radiology in oncology) with BTG’s existing commercial infrastructure. BTG has its own products like Varisolve, in phase III for varicose veins, and a rich and varied partnered and revenue-generating pipeline with products like AZD 9773 (CytoFab), an antibody for severe sepsis, partnered with AstraZeneca.

The latter came from BTG’s acquisition of Protherics, which also gave it CroFab, a snake venom antidote, and DigiFab, for digoxin toxicity. “You need a certain scale and substance to be in this business to pay for infrastructure and development,” said Burrows. “We can grow, compete and build something people can invest in and be a player.” An awareness of a decreased appetite for risk on the part of the investor forced change at BTG a few years ago.

“We focused the business in certain areas and did some painful cost-cutting, as we realised we needed to pay our own way.  You must give a roadmap on how to be sustainably profitable. The pool of specialist healthcare investors has decreased greatly.  These are challenges you need to think about in the UK. If you can bring a good story to investors, there is still a pool of capital.”

Phil Howarth, chief executive of Silence Therapeutics, described how his company transformed itself from a UCL spinout focused on TB, into a biotech company specialising in siRNA, through a series of acquisitions – first of the German company atugen, and then of California-based Intradigm. 

This growth by acquisition has left it with some legacy issues. The company’s R&D base is in Germany.

“There is a balancing act where we must convince US investors to put money into German-based R&D or move the R&D people to the US. We continue this hybrid model but it is not always easy to manage and we are certainly evaluating it. For us the challenge is in having a large infrastructure in Germany and investors in the US, with London being the pivot.”

The UK also has a strong base in regenerative medicine, with a number of cutting edge companies making progress. Government has sought to commercialise this expertise through the announcement of £18 million funding through the TSB, plus a further £3.5 million from the research councils, to support key R&D. Last year saw the launch of the Centre for Innovative Manufacturing in Regenerative Medicine at Loughborough University, with government funding (via EPSRC) of £5.3 million over next five years, and £3 million from industry and government partners, to develop robust processes and practices that can move therapies from bench to bedside.

ReNeuron’s lead candidate is a stroke treatment currently in a phase I trial, using their neural stem cells. It has been a long road over 13 years with more than one setback, he notes. ReNeuron’s challenges have been the usual ones that affect most biotechs such as finance. The regulatory environment for this work in the UK and elsewhere can be a concern. Michael Hunt, chief executive of ReNeuron says: “There is still a lot to do in terms of streamlining.”

One thing that hasn’t been a worry has been the technology itself. “At the moment we are at a sweet spot – the wider stem cell scene is coming of age and the field is moving along.”   

Life science services

Another UK company making good progress is InhibOx, the Oxford and Princeton-based computer-aided drug discovery company, which has evolved over the last ten years from the Screensaver Lifesaver project – the world’s largest computational chemistry experiment – involving 3.5 million computers finding lead compounds for cancer, anthrax and smallpox. InhibOx applies cloud computing to drug discovery and the company’s recently launched SCOPIUS-5 database is the world’s largest, containing 110 million validated drug-like compounds. Traditional high throughput screening costs around $1 million per project and has a less than 50% success rate. “We have a fantastic capacity for virtual high throughput screening and lead development,” said InhibOx’s chief executive Paul Davie. 

The company was supported financially by the University of Oxford, local business angels VCs and EU grants. “They gave us a lot of time to develop and validate our technology thoroughly. You cannot build what we have quickly or cheaply.” Davie noted.

“What worries me now is that UK start ups are now not being given the time or resources to build properly before they need to generate revenues. This will increase the attrition rate of start ups. It is good to get the support of far-sighted individuals, but VCs and their investors are becoming more cautious and look for evidence of revenue.” The investment community seems to be more risk averse these days when looking at new companies to invest in. This means that the classic funding gap for early stage companies is becoming deeper, and Davie would like the government to step in with more support.

Moreover, the home market’s ability to grow revenues is shrinking as the number of UK pharma sites decreases. Government must do all it can to persuade GSK and AstraZeneca to remain here, Davie said.

“Companies need to have direct access to customers to develop the market knowledge needed to shape products.” He added that new companies starting up must generate international revenues from the start, and for this they need an experienced commercial head in place quickly.

Companies also need to be aware on how the drug discovery and development scene has changed in the UK in recent years.

“I think the UK life science industry mirrors that of the automotive industry. There is more emphasis on the expert design aspects of R&D, which is where companies like ours come in,” Davie said. “Manufacturing and medicinal chemistry are going to China and India. This restructuring of R&D provides both opportunities and threats to service companies.”

Manufacturing stem cells, and other cell-based products, is crucial as regenerative medicine goes through clinical trials to commercial scale. Edinburgh-based contract biomanufacturer Angel Biotechnology, supplies cGMP neural stem cells for ReNeuron’s groundbreaking phase I trial in stroke disability. AIM-listed Angel originally focused upon recombinant proteins. A strategic business decision was taken to focus on advanced biologics (phage, viruses and cell therapies, including stem cells) to exploit the growing niche of live therapies and to establish Angel in this evolving landscape.

The company’s association with ReNeuron began with a Department of Trade and Industry grant in 2005. Gordon Sherriff, Angel’s chief operating officer and business development director, noted: “Advanced biologics requires a whole package of different regulations and skill sets. Right now the company has never been in a better position, supporting companies developing cell-based therapies with an integrated service, translating lab-based process to commercial reality. Our experience fits the needs of many products being developed in the US.”

He adds that that funding has always been difficult and that AIM listing has been a great move which he would recommend to companies who have periodic intensive capital requirements. “It is not easy to do but if, at the end of the day, it allows you to realise business opportunities and gives the company flexibility in the market place, allowing rapid growth, then it is worth it.”