UK in urgent need of innovation funding boost

Analysis

For life science researchers in UK universities and early stage biotech companies, arguably the most significant of the British government’s new initiatives announced today at the FT Global Pharmaceutical & Biotechnology Conference is the creation of a three-year £180m ($280m) Biomedical Catalyst fund (UK government moves to boost R&D and harness NHS data, December 5, 2011).

Although details of how companies and universities might access this fund – to be managed by the Technology Strategy Board (TSB) and the Medical Research Council (MRC) – have yet to be fully revealed, the UK life sciences sector could certainly do with such a decent injection of cash. Venture financing data from EvaluatePharma shows that just $31m has been invested so far this year into UK biotech companies at seed, series A and B stages, as the credit crunch of 2008/09 really starts to bite. Indeed, $280m is greater than the $246m invested in early stage companies in total over the last four years (see table below).

Mind the gap

Translating encouraging science into viable products and technologies has always represented one of the biggest technical challenges in the sector. Yet in this post-credit crunch era, that challenge has almost become insurmountable given the dearth of funds available from the full spectrum of investors, but particularly from traditional venture capital firms.

This phenomenon has been around for a few years now, but it seems the full impact of the credit crunch is really only being felt now (Vantage Point – VC funding slump in first half points to tougher times ahead, August 17, 2011). And the data in the table below show how dramatic the effect has been on the UK life sciences sector. Only three UK companies, Acacia Pharma ($10m), Plasticell ($3m) and Prosonix ($18m), have raised early stage money (seed, series A, B) this year, compared to $70m invested in 2010, $42m in 2009 and $103m in 2008. The data reflects financing rounds that have been announced by the companies themselves - while some early stage investments are not made public, the values of unnanounced financings are likely to be relatively small and not change the overall trends seen here.  

Furthermore, taking out Circassia’s impressive but somewhat rogue £60m ($98m) series D round this year – which came from just two main investors in Imperial Innovations and Invesco Perpetual – and investment across the board into UK biotech is looking worryingly weak.

Venture Capital Investment in Private UK Life Sciences Companies     (source: EvaluatePharma)
2006 2007 2008 2009 2010 2011
Financing Round Investment ($m) Deal Count Investment ($m) Deal Count Investment ($m) Deal Count Investment ($m) Deal Count Investment ($m) Deal Count Investment ($m) Deal Count
    Seed/Series A 58 5 41 8 58 4 41 4 58 4 13 2
    Series B 27 1 40 2 45 3 1 1 13 1 18 1
    Series C 68 2 - - - - 27 1 42 4 9 2
    Series D - - - - - - 15 1 17 2 98 1
    Undisclosed 23 4 240 13 56 8 63 10 136 7 26 3
Total 176 12 321 23 158 15 147 17 265 18 164 9

‘Extremely important’

Hence the significance of the UK government’s Biomedical Catalyst fund announced today, specifically targeted at ‘initial research in universities through to commercial development in small- and medium-sized companies’.

“This is extremely important for the UK,” Sir David Cooksey, chairman of the Francis Crick Institute and a founder of Advent Venture Partners, told EP Vantage on the sidelines of the FT conference. Sir David believes state and charitable funding must increasingly step in to plug the ‘innovation gap’ or ‘valley of death’, as the struggle for early stage funding is often described.

However, he cautioned that these research organisations need people who are commercially minded , to help translate scientific research into commercially focused companies.

Sir David, who was a founder of Advent Venture Partners in 1981, points to his appointment as chairman of the Francis Crick Institute as an example of how this is already happening. The huge £600m research centre that is being built in London in collaboration with the government, the MRC, The Wellcome Trust and University College London is intended as a major hub for life sciences in the UK.

While at the moment it is still “a big hole in the ground” the building is on track to open in 2015, he said. Expected to house 1,250 scientists with an annual budget of £100m, the centre is set to be a major focus of clinical research in the UK.

“Its purpose is not just doing basic research, but to translate it into benefits for patients,” he said.

More needed

While the steps announced today are important, ways to encourage pharma companies to put more money into research could be implemented, said Sir David. For example, collaborations between state funded projects and industry could allow pharma companies to offset the losses from the research against tax.

“This could encourage more collaboration, and it would also help the VC industry if they feel pharma companies are committed.”

Meanwhile, until the process and criteria for accessing this new fund becomes clearer and is made available to all-comers – the TSB is talking specifically about ‘focussing on areas such as regenerative medicine, stratified healthcare and emerging medical technologies’ – there will inevitably be some sceptics. Dr Glenn Crocker, chief executive of the incubator company BioCity Nottingham, made a statement today stressing that the money needs to flow to companies outside the South East of England.

However, the UK government’s plans will be largely well received. Vital new funds should now be available, although the challenge of translating great science into effective new products and technologies remains.

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