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Britain’s biotech stars fade away

Analysts declare death of all-or-nothing approach after more than a third of listed biotechs go bust in three years

It sounds like a case study for Eric Schmidt’s view that Britain squanders its innovations in science and engineering. The biotech industry, where medicines are developed from scratch, was once seen as a sector where Britain could lead the world.

But, despite great promise, some of the brightest stars in drug development – such as lung cancer firm Antisoma – have failed and faded away to leave a rump of companies in the £5bn sector.

“The small-cap healthcare sector has had quite a rough ride over the last few years,” said Chris Spooner, chief executive of Sinclair which recently merged with IS Pharma and specialises in dermatology and wound-care. Perhaps supporting the Google chairman’s theory, he said companies have encountered “problems with technology or management”.

Alan Aubrey, chief executive of IP Group, which backs university spin-outs including Tissue Regenix, echoed Schmidt’s claims and bemoaned the fact that even though UK scientists came up with many of the discoveries that have shaped our lives – including DNA, ultrasound, MRI, LCD and fibre optic cable – Britain has been poor at commercialisation. “The UK produces 5% of the world’s scientific research output with less than 1% of the world’s population. But over the last 100 years the UK has been less good at building an industry across its inventions.”

This year’s European Mediscience awards – the Oscars of the biotech industry – spoke volumes for the state of the sector, with executives gathered around just 32 tables, compared with 49 in 2008. The drop reflects the dramatic changes in the UK’s healthcare and life sciences industry over the past three years.

More than a third – 29 companies – of the listed biotech sector have gone bust since 2008 and 10 are on the brink, according to work by Paul Cuddon at analysts Peel Hunt. Another 38 are “fine” and six were bought by other companies.

Experts have declared the death of the ‘binary biotech’ – early-stage drug discovery firms, without a revenue stream, that have a binary outcome – an all-or-nothing approach. If the first drug that enters clinical trials is successful, the company moves on to raise more money or partners up with a large pharma company; however if the first product fails, it is quite likely that the company will run out of money.

The model has not delivered for shareholders and now makes up only 4% of the small and mid-cap sector (firms with a market value below £1bn), compared with nearly a third a few years ago, says Cuddon.

Once one of the rising stars of Britain’s biotech industry, Antisoma, has been reduced to a cash shell after its lead lung cancer and leukaemia drugs failed in late-stage clinical trials. Similarly, Renovo’s lead drug failed in phase-three trials earlier this year and the firm is being wound down. Ark has been in restructuring mode since the failure of its lead drug Cerepro two years ago.

Other notable company failures include Alizyme, which floated on Aim in 1996, moved to the main stock market in 2000 and collapsed in 2009 after years of losses, along with Cambridge-based Medical Marketing International and cell therapy firm Intercytex (which was relaunched with government funding last November). The Edinburgh-based reproductive health company Ardana, which was co-founded in 2000 by Simon Best, a former tour manager of 1980s pop band The Human League; Cambridge pill-coating specialist BioProgress renamed Meldex, once the darling of the Aim market, which went bust after a huge acquisition spree; and dermatology drug maker York Pharma also went under in recent years.

Chris Blackwell, chief executive of Vectura, which specialises in drugs for respiratory diseases such as asthma and chronic obstructive pulmonary disease, said: “It would take a brave new company to come out with a binary approach. Investors are not stupid – they want companies that have several shots on goal and have good management, a good strategy and a punchy business plan.”

Despite the problems, a new generation of successful smaller drug companies is emerging, led by GW Pharmaceuticals, known for its cannabis-based multiple sclerosis drug Sativex, and BTG, which has gobbled up rivals Biocompatibles and Protherics.

The bioindustry raised more than 0m (£150m) in financing between April and June, the largest amount raised for a year. The recent OBN BioCluster report said this signalled an end to the financing drought that saw three consecutive quarters below 0m in 2008. The money raised so far this year equals what was raised in 2009 and 2010 combined.

Executives in the sector are quick to distance themselves from the one-trick ponies of the past, and are at pains to stress that they have adopted low-risk strategies. “It’s all about de-risking – giving science the best chance of success,” said BTG chief executive Louise Makin. “First and foremost, it’s about being sustainably profitable rather than the conventional biotech model: start a with big pile of cash, run it down and go back to investors.”

She reckons binary biotechs are more successful in the US simply because there are more players, as well as more specialist investors – and success makes investors more willing to invest.

Vectura is playing safe by developing products using active ingredients that are not novel, and is licensing its inhalers out to Big Pharma companies such as GlaxoSmithKline and Germany’s Boehringer Ingelheim.

“We don’t want to invest in early stage discovery – it’s a lottery game,” said Blackwell. So how do you get new products? By partnering with another company or tapping into academic research.

For example, Tissue Regenix, the UK’s leading player in the repair and replacement of human body parts, is a spinout from the University of Leeds and floated on Aim last year. Its technology was developed by wife-and-husband team Eileen Ingham and John Fisher at Leeds. It takes a piece of pig or human tissue equivalent to the damaged body part that is being replaced, and removes the cells so all that remains is a “scaffold”.

“Now the magic begins. We put the scaffold into your body and it’s populated with your own cells,” said the firm’s chief managing director Antony Odell. It takes about six months until the tissue is fully integrated into the body, without the use of anti-rejection drugs.

The company relies on academic work. “Rather than leaving it as academic papers in the library, we take the research that has been funded by the public purse and turn it into a commercial product,” said executive chairman John Samuel.

Odell chips in: “The idea that you can do everything yourself – research, development etc – is gone. People are collaborating much more to make sure that what they produce is best in class.”

In the long run, biotech firms should benefit from Big Pharma’s drive to slash research & development budgets and buy in more products from outside. Pfizer, the world’s largest pharma company, is leading the way and its cuts meant that spending on R&D by the pharma industry fell for the first time last year.

While drug companies have traditionally targeted the US, the biggest drug market in the world, they now also have emerging markets in their sights. Consultancy IMS Health recently estimated China would become the world’s third largest pharma market this year, up from number eight in 2006. Sinclair boss Spooner says the US is a “very expensive market to enter,” and with demand for western medicines growing in the Far East and elsewhere, “I’ll go after Asia”. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds