Return to Reaganomics Seen Reviving U.K. Biotechnology
Though it has knowhow and wealth, the U.K. has never had much success creating biotechnology startups to rival such U.S. triumphs as Genentech Inc. and Amgen Inc. One explanation for this difference can be summed up in two words: Ronald Reagan.
President Reagan’s overhaul of investment and tax rules at the dawn of the U.S. biotechnology industry in the early 1980s pushed pension funds toward riskier investments. That helped fuel the growth of giants including Genentech, today a unit of Roche Holding AG, and Amgen.
Now, the U.K. government is revisiting Reagan’s playbook to ease burdens on small business. As of July, shares traded on the London Stock Exchange’s market for small companies can be included in tax-free individual savings accounts. The initiative is one of several Reagan-inspired ideas designed to drive investors to riskier bets including biotechnology. Another proposal, a hybrid of crowd-funding and venture capital, may win backing by the government as soon as December.
“We have all the components for fantastic biomedical success,” London Mayor Boris Johnson said at an industry conference on Oct. 10. “So far, we haven’t found a way of converting that intellectual pre-eminence into commercial application on the same scale as they have in Boston.”
While the U.K. has had one initial public offering so far this year, the U.S. has seen the strongest year for IPOs since 2000, with 33 deals priced as of this week, totaling $2.7 billion, according to data compiled by Bloomberg. That’s more than double the value of the 12 deals last year.
“Now it’s obvious that this is solely because the U.K. is different than the U.S.,” said Michael Hopkins, a lecturer at the University of Sussex department of Science and Technology Policy Research who studies biomedical innovation. “We can’t say, ‘Oh, it’s all because the industry is in crisis’ anymore.”
Among the industry’s biggest challenges is overcoming a legacy of setbacks. Investors in U.K. startups have been burned as failures plagued companies including British Biotech Plc, Renovo Group Plc and Antisoma Plc. IPOs have taken a back seat to licensing deals or takeover bids from bigger rivals. That’s led to what Polar Capital Holdings Plc (POLR) investor Dan Mahony calls a vicious cycle where biotechs dependent on long-term funding for drug development instead attract only short-term investors.
While it’s too early to see results of the Reagan-esque measure, another policy seems to be bearing fruit, said Steve Bates, head of U.K. trade group BioIndustry Association, which has 290 members. The Biomedical Catalyst fund, a 2012 initiative, allows companies to compete for money to avoid what Bates calls the “valley of death,” the long, funding-deprived duration of drug development.
In July, an Oxfordshire-based firm called Summit Corp. (SUMM) won a 2.4 million-pound ($3.9 million) grant to fund clinical testing of an experimental treatment for Duchenne muscular dystrophy. Polar Capital’s Mahony, who helps manage about $9.2 billion, said he bought Summit shares at about 3 pence apiece in April 2012. His investment has since soared to 13.75 pence per share at the close of London trading yesterday.
The Biomedical Catalyst fund “is helping to get the earlier-stage clinical stuff funded before they come to see guys like us,” Mahony said. “With some of these companies, the financing risk is bigger than the clinical risk.”
Such efforts seek to exploit a U.K. strength: innovative ideas. Humira for rheumatoid arthritis was developed in the early 1990s at a company founded by University of Cambridge scientists. The drug has turned into a $9.3 billion-a-year bestseller sold by AbbVie Inc. (ABBV) Cambridge scientists also created the multiple sclerosis treatment Lemtrada, which eventually became a Sanofi product.
Yet these new policies won’t offer anywhere near the scale of funding typically supplied by U.S. investors. While the cost of developing a drug can be as much as $1.5 billion, the proposed hybrid of crowd-funding and venture capital, called the Citizen’s Innovation Fund, aims to generate about 300 million pounds. The Biomedical Catalyst fund offers 180 million pounds. Indeed, the U.K.’s largest biotechnology company, BTG Plc (BTG), has a market value of 1.47 billion pounds yet wouldn’t even rank among the U.S.’s top 20.
University of Sussex’s Hopkins, whose research has been presented to U.K. lawmakers, says European investors are just as drawn to biotechnology as their American counterparts -- with one difference.
“People over here are interested in putting money into biotech, but they’re more focused on selling to another company rather than building the next giant,” he said. “We didn’t have those Genentech or Amgen product launches that made investors feel safe.”
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