UK aiming to match investment strategy to research timelines

Print 27 July 2015
Nuala Moran / BioWorld

LONDON – With the amount of funding available for biotech in the UK finally rebounding from the financial crisis, there is now a push to extend the timelines over which it is made available, to better accommodate the 10 to 15 years it takes to develop a drug.

The move is being spearheaded by the Mayor of London's office, which last month convened a meeting to discuss how the city's position as a global financial center might be harnessed to tackle structural problems within life science investment and create a large pool of capital to support long-term drug development.

The meeting was organized in conjunction with Medcity, a London-based body that promotes research commercialization, and supported by the European Investment Bank (EIB), which holds public funds it can use to attract private sector investment in research. Among those attending were representatives of Pfizer Inc., Eli Lilly and Co. Inc. and JP Morgan.

Options that were discussed include establishing a mega fund of up to £10 billion (US$15.6 billion) created by a mix of debt and equity finance, and tapping into a new pan-European innovation financing program, Innovfin, which was recently launched by the EIB.

Other ways of encouraging a long-term approach that are under consideration include tax incentives for investors who hold onto shares for more than 10 years, persuading them to behave more like owners and grow larger companies; and capital gains tax incentives, in which the longer it takes to get a return, the lower the tax that is levied.

The meeting was chaired by Eliot Forster, executive chair of Medcity, who told BioWorld Today the aim is to build a large pool of patient capital. London's life sciences research base is extremely competitive, and Forster said there is increasing agility in translating research into spinouts. "Capital is the key ingredient that grows those companies and brings therapies to market, and at the moment we simply don't have enough of it," Forster said.

Alongside his role at Medcity, Forster also is CEO of Immunocore plc, the Oxford, UK-based T-cell specialist which this week announced the closing of a $320 million private round, the largest private financing ever for a European biotech. (See story, this issue.)

The suggestion is that a mega fund would support a basket of drug development projects in a single portfolio, lowering the overall risk.

There would be a much higher chance of bringing a few successful projects to fruition, more than compensating for the many programs that flop.

One of the key aims is to grow more independent midsize UK companies. Rather than looking for exits in the short term, investors would get a share of the royalties or licensing revenues from successful projects.

"It's not just volume of money, it's the timeline," Forster said. "This is a weakness of funding for drug development around the world. The usual [investment] timescale of five to 10 years is simply too short."

The hope is that by pooling risk to address high cost and complexity, nonspecialist backers will be attracted into drug development.

Jonathan Taylor, vice president of the EIB, said the publicly funded Innovfin program could be used to attract private sector investment in life sciences. "By reducing the risk for other investors, the EIB can help catalyze engagement from other sources of finance," Taylor said.

The EIB has experience supporting commercialization of life sciences research in the UK, this week granting a second loan of £50 million to the quoted technology commercialization company, Imperial Innovations plc.

That follows a £30 million loan agreement in 2013, which has allowed Imperial Innovations to invest more than £62 million in early stage companies, including seven new additions to the portfolio, according to CEO Russ Cummings.

"Originally, we planned to commit this expenditure over a four-year period, but we have been able to execute the plan in only two, by virtue of the increasing maturity of our portfolio, as well as the rich opportunities derived from our extensive network of academics, entrepreneurs, management teams and co-investors," Cummings said.

FINANCE TO 'REFLECT THE OPPORTUNITIES'

Data published in March by the industry body, OBN Ltd., showed UK life sciences companies had a resurgent year in 2014, finally putting the financial crisis to bed, with 114 financing rounds bringing in $2.86 billion. (See BioWorld Today, March 16, 2015.)

Jon Rees, CEO of OBN, told BioWorld Today it is, "a very good thing" that the Mayor of London has catalyzed a debate. However, it would be "toxic" for any new fund to set itself up in competition to the venture industry, which allocated $883 million to UK life sciences companies in 2014.

"Following a decade when the only game in town for early phase drug developers has been venture and corporate venture, there needs to be extensive consultation with the key venture industry investors in UK life sciences before a further announcement, so that a professional and competitive process for the allocation of capital to projects remains intact," Rees said.

A significant additional allocation of capital to angel and seed funds might also increase the number of biotech spinouts and encourage the relocation of global biotech start-ups into the UK, Rees added.

Forster said that while the increase in the amount of money flowing toward UK life sciences makes for optimism, more is needed in order that "the finance reflects the opportunities."

The sentiment at the meeting was highly supportive and Forster said he believes a fund of the nature and size proposed is possible.

"We wouldn't go public unless the order of magnitude was achievable," he said.

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