London Mayor Boris Johnson is proposing a 10 billion-pound ($16 billion) fund to encourage growth of emerging health-care companies in the U.K. in an effort to catch up to biotechnology clusters in the U.S.
The so-called megafund, discussed Thursday with banks and drugmakers Eli Lilly & Co. and Pfizer Inc., may be created by a mix of debt and equity finance, the mayor’s office said in a statement. A program jointly established by the European Union and the European Investment Bank to make more than 24 billion euros ($27 billion) available over the next seven years may also be tapped.
“London is one of the most powerful scientific discovery engines in the world,” Johnson said in the statement. “We hope to harness our role as a global financial center that will bring more life-saving drugs to market and deliver a huge boost to the economy.”
While the U.K. is home to two of the world’s biggest pharmaceutical companies, GlaxoSmithKline Plc and AstraZeneca Plc, it has failed to produce large biotech companies on the scale of Amgen Inc. and Gilead Sciences Inc. in the U.S. Challenges to the industry’s development include a lower risk appetite among investors and a tendency of biotech companies to be acquired before they gain scale.
In addition to the EIB, financial institutions taking part in the talks with Johnson include SVB Financial Group’s Silicon Valley Bank and JPMorgan Chase & Co.
Experimental drugs take an average of 10 to 15 years to reach the market and carry a high failure rate. More long-term investment is needed for the U.K. to develop a crucial tier of mid-sized health-care companies that’s currently lacking, the mayor’s office said. By pooling various drug-development projects into a single portfolio, the overall risk would be lower, with a much higher chance of generating successful products that compensate for failures.
The discussions on Thursday also touched on underlying issues that create barriers to investment in biotech, particularly from large pension funds, said Nooman Haque, a director in London at Silicon Valley Bank, which helps startup companies in the industry with financing options.
For example, pre-emption rights limit share offerings to existing shareholders before they can be expanded to others, Haque said. The pool of research analysts covering biotechs and specialist investors with a deep understanding of the sector may also be insufficient.
“There was an acceptance that one shouldn’t rush in with a large hammer to crack what may be a series of small nuts,” he said.
Johnson’s proposal adds to efforts such as fund manager Neil Woodford’s establishment of the Woodford Patient Capital Trust earlier this year to invest in U.K. companies with high-growth potential. The trust raised 800 million pounds in April.
The mayor’s office hosted Thursday’s meeting jointly with MedCity, an initiative Johnson started last year to encourage health-care research and commercialization.