UK biotech: a new landscape for the ‘spring of innovation’
pharmafile | September 16, 2013 | Feature | Business Services, Manufacturing and Production, Medical Communications, Research and Development, Sales and Marketing | BIA, Steve Bates, UK biotechnology, VBP
Six years ago, the Western world entered one of the biggest recessions in its history and many industries cracked, with some companies even being knocked out of existence.
The pharmaceutical industry was largely immune to the financial problems as it could tap into emerging markets that were less affected by the crash, with most of the bigger firms having enough cash flow to help ride out the rocky periods.
But the same cannot be said for the biotech sector which was hit hard by the recession. Its traditional model for funding came from investment firms and venture capitalists (VCs) that had plenty of money to invest in risky – but potentially highly rewarding – life science start-ups.
But VCs both in the UK and globally have become less prone to risk since 2007, as the banking crisis that led to the financial crash was due in part to high-risk financial ventures. This means more VCs have shied away from making bigger investments which has decimated the sector, as traditionally biotech lives and dies by this type of funding.
Steven Bates, chief executive of the sector’s UK group the BioIndustry Association (BIA), tells Pharmafocus: “I think we are still feeling the effects of the recession and this remains a challenge.” He adds that it would be the ‘wrong analysis’ to think that things will go back to the way they once were in Britain.
“But that doesn’t mean that I have a council of despair here [at the BIA]; I think that the future landscape will be different, and we are seeing the emergence of some slightly different forms of funding, partly as a result of the challenges of recent years, and partly just because the world has moved on.
“Undoubtedly, the City is still going through the outflow of the financial crisis and that has meant some of the biggest institutions are still in a mode where they are looking to consolidate and re-capitalise conditions, and therefore their appetite for risk has gone down for life science and biotech ventures.
“So I think we’re seeing a change and it’s not expected to be as it was a few years ago – I don’t think the clock will turn back, but we can have renewed optimism for the emerging new landscape of the biotech industry.”
New landscape
So what does this new landscape in the UK look like? Seeing the biotech sector was struggling, the UK’s coalition government introduced a series of initiatives for the life science industry in 2011 under the Innovation Health and Wealth report.
For biotech, the key package has been the Biomedical Catalyst which is co-funded by the Medical Research Council and the Technology Strategy Board, and supplies £180 million to support UK life science innovation.
This national funding has helped smaller firms develop treatments from pre-clinical to human testing, and has also encouraged funding from the private sector. In a nutshell, the Biomedical Catalyst means firms are doing things they otherwise wouldn’t have done with funding they were lacking from VCs.
Glide Pharma in Oxford is a good illustration of this development. The money allowed it to orchestrate a significant national funding boost, encouraging £16 million worth of private investment. The UK has also introduced other incentives such as the patent box and R&D tax credits, making it cheaper for pharma and biotech firms to work and develop medicines in the country.
Bates says: “The government has a strong track record of support for the UK biotech sector. It’s great to have a government that supports the ecosystem on which we depend – that’s the ground stock, the springs on which the biotech industry can flourish.”
He adds that the requirements of biotech businesses in the UK have been listened to and understood, giving special praise to the Catalyst, which he believes is: “The single most important intervention the government has made in the last couple of years to make a difference to the sector”.
More to be done
But this doesn’t mean that the BIA can pack up its office in Victoria Street and consider its job done. “There is always more that the government can do,” says Bates, whose biggest concern – like many in the industry – is the spectre of value-based pricing (VBP).
VBP is a highly controversial drug pricing scheme from the government that aims to align the cost of drugs to new definitions of value. It will replace the 55-year old voluntary PPRS scheme, but many in pharma would rather see this older pricing structure remain, given that it allows the industry more freedom to price its own medicines.
VBP is set to roll out from January 2014 – but a deal has yet to be been done between the Department of Health and the pharma lobby group the ABPI. “We need the pricing environment resolved fast,” says Bates, “So that companies can know with confidence that the innovative products they get to market are going to be used and adopted by the NHS.”
Looking outside the UK, the BIA is also vigilant of developments that are taking place in other parts of the world, especially in the realm of regulatory policy. One notable area is the so-called ‘breakthrough designations’ from the FDA and whether that is speeding up the development of pharmaceuticals. This designation is given to products that meet an unmet medical need and speeds up the overall time it usually takes the FDA to make a decision.
But neither the European Medicines Agency nor UK drug regulator the MHRA have the same ‘speed lane’ as the US. “This makes us ask whether there is something we can do at the UK or European level to ensure patients have access as quickly,” says Bates.
There are UK government proposals for an early access scheme which could potentially allow drugs successful in Phase II to be rolled out in the UK, as long as they meet certain parameters. This is something still in development, but an avenue many biotech firms are keen to see in the UK.
UK a strong place for biotech
In the US, VC spending has started to re-emerge this year with a wave of stock market enthusiasm for biotech company flotations, and this enthusiasm is starting to trickle across the pond to Europe. Bates says: “If you look at what’s going on with biotech in the US over the last year, we’ve seen a fantastic run on IPOs on the US markets and seen significant upside for shareholders and investors.”
But what’s happening in the US, and even on the continent, may not necessarily be mimicked in the UK. Bates says: “I think we probably don’t have as strong a community of successful investors as they do in the US, but I think people are now seeing the potential value of biotech investments from market experience across the Atlantic.”
Private biotech companies globally raised just under $1.3 billion through venture capital deals in the second quarter of this year – a 190% jump over the amount raised in the previous quarter, according to analysis from BioWorld Snapshots.
So why should biotech firms come to the UK? Europe does not have the same level of biotech investment and firms as the US, and total funding for the US sector was $23 billion last year – against $4 billion for Europe, according to analysts at Ernst & Young.
The US boom has been partly fuelled by a more favourable regulatory environment, as well as a low cost of capital and interest from generalist investors looking for strong earnings growth potential. But Bates, acknowledging the US success story, quickly reels off a long list of what the UK has to offer: “World class science; a cluster of top universities; a fantastic leading financial centre in London; a perfect time zone that bridges between Boston and Shanghai; a great place to live and raise your family.
“We have an attractive and vibrant system in which, if you’re married or have a partner, they will be able to find a good job – regardless of whether they are a scientist or any other type of professional.” And this testament to the UK’s potential pull is being borne out in bricks and mortar on the ground by bigger pharma firms, such as Johnson & Johnson, which has chosen to put its European hub in London, and Astellas, which last year decided to make Chertsey its European HQ.
Lilly has also recently invested heavily in its R&D centre in Surrey, and in July, Renueron – the US firm that is conducting the world’s first stem cell trials – said it would relocate from Guildford, Surrey to Wales, showing internal competition for locations in the UK.
But the symbol of all of this for Bates is the Francis Crick Institute, a centre for biomedical research, which is being built a stone’s throw from King’s Cross station in north-east London. This new facility is a unique partnership between the Medical Research Council, Cancer Research UK, the Wellcome Trust, University College London, Imperial College London and King’s College London.
These organisations will invest a total of £650 million in the institute, which is set to open its doors in 2015. It will be an interdisciplinary medical research centre, designed to look for new ways to prevent and treat illnesses such as cancer, heart disease and stroke, as well as infections and neurodegenerative diseases.
The location of the institute provides scientists with easy train access to Paris and Brussels, and Cambridge, the ‘Silicon Fen’, is about an hour away: “This gives you some idea of the vibrancy of the UK,” says Bates.
Partnerships key to future innovation
The biggest impact the biotech sector has had on pharma is its research and development model. In the 1980s and 1990s R&D was led predominately by internal pharma teams working from set locations. Large sums of money were spent on new projects and the ‘golden age’ of pharma was the result, with major blockbusters like Pfizer’s $13 billion-a-year Lipitor the biggest success story of this model.
But once the ‘low hanging fruit’ of drugs were picked and marketed, the next round of incremental innovation was not delivered by these research programmes, and both productivity and returns on investment suffered as a result.
In the late 1990s and on into the new millennium, pharma began to use partnerships as the new way forward for innovation, and the biotech industry was one of the main benefactors of this change. But this begs the questions: has pharma lost its innovative edge, and is it now relying too heavily on biotech firms to produce the next crop of products?
Bates says: “There’s no doubt that biotech has changed the R&D model for pharma – but I wouldn’t say that’s a bad thing. Most of the people at the top of the biggest pharma companies in the world see this as a strategic response to the lack of productivity they saw in the past from their internal R&D facilities.
“I think it’s very hard to make the next Lipitor on your own, and many organisations are looking for the right mix to get innovation to happen quickly.”
And partnering with biotech firms has proven the right mix for many in pharma. One of the biggest successes has been the combination of the US-based biotech firm Genentech and Swiss oncology major Roche. Roche has been able to bill itself as ‘the’ oncology drugmaker because of its collaboration with Genentech, which it acquired in 2009 for $46.8 billion, after investing quite heavily in the company from an early-stage.
This partnership is responsible for a new era of personalised medicine that attacks specific mutations and tumours, and includes the HER2 breast cancer drug Herceptin and Avastin, which has licenses for colorectal, lung and kidney cancers, among others.
Many other firms have followed suit, with Sanofi buying speciality rare drug maker Genzyme in 2011 and, in 2006, AstraZeneca acquiring the UK’s Cambridge Antibody Technology (CAT) centre, which was later absorbed into its US biologics arm, MedImmune.
Bates says: “Where we see biotech-like offerings within pharma companies, you see more partnering happening and you see open innovation happening. Making sure you have that cross-fertilisation is one of the important things in the sector today.
“But that doesn’t mean to say that pharma isn’t still looking at developing drugs internally – the idea that all of pharma innovation is going to come from the biotech sector is somewhat overwritten, as there is still a role for the R&D divisions of the biggest players.”
Bates says that there is, however, a place even in these traditional models for pharma to learn from people in the ecosystem who are in SMEs or diagnostic companies. “I think what you can’t do is sit in your ivory tower, however wonderful it is, and not engage with everybody else,” he says.
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