Saving UK Biotech
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January 22, 2009 Saving UK Biotech Evaluate Vantage While news of the death of the UK biotechnology industry maybe exaggerated, despite a recent spate of companies falling into administration and big pharma picking off some of the best and brightest hopes in the sector, a report into the state of the industry by the Bioscience Innovation and Growth Team published today indicated that an ambulance might be called for unless drastic measures are taken. Chief among the calls from the group, which is supported by the UK’s industry champion, the Biotech Industry Association, was the need for more tax incentives, especially for the pharmaceutical industry to make investments in smaller biotechnology businesses more attractive, in order to ensure the health of the sector. Speedier approvals The National Institute for Health and Clinical Excellence (NICE), which decides on which drugs will be used in the UK’s health service was also identified as a potential barrier to drug innovation, due to the length of time it takes to decide on whether to use drugs. Sir David Cooksey, who was presenting the review on progress made in the industry since 2003, said that the average time between approval of a drug and its introduction by NICE often equated to a third of the patent life of the drug, leaving innovator companies less time to recoup the cost of drug discovery and potentially driving prices up. But the most controversial proposal today was the suggestion that drugs in phase II be used commercially in the UK, whilst waiting for approval, allowing orginators to recoup the cost of development at an earlier stage. This strategy, which the report authors hope to get approved by the Medicines and Healthcare products Regulatory Agency, is in stark contrast to what is happening in the US, the world’s biggest producer and consumer of drugs. The increasingly risk averse FDA instead of shortening trials now has the right to demand post marketing studies of drugs to ensure their long term safety. Which makes the plans by the group to have this system eventually adopted in the US seem very unlikely. Relative scale The report also highlighted the current funding crisis facing many smaller companies that have seen valuations decrease and access to the public money markets all but shut. One of the things that many in the industry have seen as the problem with the UK biotech sector is the relative size of companies, which has not encouraged investors to look at the industry. This lack of scale has also been coupled with the poor returns that investors have historically made from the sector, with many small biotechs yet to report profits despite years of investment. The table below illustrates that when the big pharma companies such as AstraZeneca, GlaxoSmithKline and Shire are excluded, only one company in the UK has a market cap above £250m, BTG, whose size was recently inflated by the acquisition of Protherics. It is also interesting to note that BTG, like the majority of larger companies in the UK is a specialty pharma group, who are more attractive to investors given their lower risk profile, which sees them generally acquire rather than develop drugs. UK Company Valuations Rank All data in £m Market Cap Cash Debt Enterprise Value Specialty 1 BTG 355 86 0 269 2 Vectura 181 79 (9) 111 3 ProStrakan 175 27 (28) 176 4 Goldshield Group 86 19 0 67 5 SkyePharma 35 22 (149) 162 6 IS Pharma 20 - - - 7 Futura Medical 19 2 0 17 8 Sinclair Pharmaceuticals 14 1 (7) 21 9 Lipoxen 12 - - - 10 Syntopix 6 - - - Biotechnology 1 Antisoma 161 67 0 94 2 Ark Therapeutics 71 50 (1) 21 3 GW Pharmaceuticals 45 18 0 27 4 Renovo 44 90 0 (46) 5 ImmuPharma 43 - - - 6 Oxford BioMedica 42 27 0 15 7 Neuropharm 35 - - - 8 Proximagen Neuroscience 31 7 0 25 9 Silence Therapeutics 30 10 0 20 10 e-Therapeutics 21 - - - Leading the pure biotechs in terms of size is Antisoma, which currently has six products in clinical development, including two phase III cancer treatments, and has itself recently embarked on acquisitions to bolster its pipeline. But after Antisoma the value of the remaining biotechs in the UK declines dramatically, whilst the next biggest company Oxford Biomedica have a market cap less than half of that of Antisoma. It is these diminutive market caps that have led some in the industry to argue that while government intervention in the form of tax breaks and closer working with health agencies benefit smaller private companies, what the industry really needs is a wave of consolidation to create larger companies, with more drugs in development. This they believe would make the companies not only more attractive to investors, but also stop the catastrophic share prices slides seen when a company’s single late stage product fails in development. It is perhaps this emergence of a large, well invested, pipeline rich champion for the sector that will be the real saviour of UK biotech. 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