Guest Blogspot – The UK Needs More Biotechnology Companies

The success of US biotechnology companies contrasts sharply with the disappointment in other countries.

British companies valued by stock markets at more than about US $ 4 billion go in the FTSE 100 index. There are no biotechnology companies big enough to qualify in the UK but 15 exist in the USA. Only six UK biotechnology companies are valued at over $200m compared with well over a hundred in the USA. The largest biotechnology company in Britain, BTG, is valued at under $ 1 ½ billion. The biggest American biotechnology company, Amgen, is valued at over $ 50 billion, ranking higher than the UK’s biggest retailer, Tesco. The USA has a population only about five times bigger than the UK. The contrast between the biotechnology industries in the UK and USA is much greater than population differences or the relative sizes of the economies can explain.

No country has done much better than the UK apart from the USA, which is in a league of its own. The UK’s performance is emphatically not caused by any scientific or technical failing. British science has remained vibrant. Seventeen British scientists have been winners of the Nobel Prize for Medicine since 1962, often for biotechnology-related work. The Nobel prizes won in the UK have covered areas like DNA’s discovery (1962), nerve cells (1963), neurotransmitters (1970), antibody structure (1972), tumour viruses (1975), prostaglandins (1982), monoclonal antibodies (1984), drugs acting on receptors (1988), cell-cycle regulators (2001) and stem cells (2007).

Unfortunately there is no generally accepted definition of a “biotechnology company”. In this blog the term is used as most financial investors use it.  A biotechnology company is generally a business whose main activity is life sciences R&D, usually in pharmaceuticals. Most biotechnology companies are loss-making because drugs need many years (usually at least six) of expensive testing prior to launch. The term “biotechnology company” in this blog also includes a second type of business: providing high-technology, biotechnology-related services such as supplying monoclonal antibodies for research use.

R&D in pharmaceutical and biotechnology companies can be essentially the same. The difference is that pharmaceutical companies have much of their value in marketed products, are usually long established and generally have high profit margins and strong cashflow. The American companies Genentech (now part of Roche), founded in 1976, and Amgen, founded in 1980, are widely regarded as the world’s first really successful biotechnology companies. Because of their history they are still called “biotechnology companies” even though they have largely evolved into established pharmaceutical businesses.

Late entry to the biotechnology industry is not a major disadvantage. Success depends on satisfying unmet needs. Most biotechnology companies believe in their potential to develop blockbusters (drugs with peak global sales over $ 1 billion per annum). The idea that mankind is running out of blockbusters to discover disregards history. More than 20,000 unique peptides (a natural chemical class) can be produced by human cells from information in human genes. The detailed study of any peptide made in the human body (e.g. adrenaline, insulin, tPA, histamine, serotonin, dopamine, alpha-interferon, beta-interferon, erythropoietin) usually leads to the eventual discovery of useful medicines (sometimes the peptide itself and sometimes drugs that mimic or block some of its actions). These products are just the tip of the iceberg. Many drugs have nothing to do with human genes e.g. because they are designed to attack viruses or bacteria directly or to do something that does not happen naturally.

There are four reasons for the UK not matching the USA in the biotechnology industry:-

1. Difficulty in raising money. A drug typically needs at least six years of testing before its commercial launch. This testing cannot begin until after the product’s discovery. A biotechnology company is doing well if one of its drugs contributes a sustainable profit within ten years of the company being founded. Furthermore, only about one drug for every ten tested in humans eventually reaches the market. Investors outside the USA have experienced a succession of disappointments and very few successes. This fact has prevented fund managers outside America from establishing a good track record. They have therefore not invested heavily in acquiring the skills necessary to evaluate biotechnology opportunities properly. The same applies to UK and European stockbroking firms, which often find the sector too small to justify developing a high-calibre biotechnology team.
2. Limited Entrepreneurial Drive. Scientists in the UK often think of “business” as a dirty word or are too specialised to wish to found companies or take on commercial challenges.
3. The success of early American biotechnology companies, notably Genentech and Amgen, encouraged other companies to enter the industry in the USA.
4. The USA provides more Government support. The American National Institutes of Health (NIH) invest over $ 30 billion annually in medical research. The UK’s Medical Research Council (MRC) spends about $ 900 m, or just 3% of the comparable US level!

Biotechnology companies can commercialise drugs in many ways. They can appoint a specialist firm (CRO) to help with clinical trials. Sales forces can be rented as needed. Alternatively, a promising drug can be licensed to an established pharmaceutical company at any stage in its development. A wide range of types of deal can be negotiated, reflecting different business models. Yet another option for the owners of a biotechnology company is to sell it to an established pharmaceutical firm or form a joint venture.

Scientists, investors and Government must not give up.  Keep trying and a major, eventual boost to the economy will happen. I currently have one UK company in mind that stands a serious chance of becoming Europe’s first major success story. Government should continue to support the patent box and R&D tax credits, consider tax relief to investors in biotechnology companies, adopt a drug pricing system that potentially rewards all R&D, spend what can be afforded on supporting relevant academic research and encourage scientists to acquire appropriate business skills.