A future full of promise

Graham Lampard discusses with Crispin Kirkman, chief executive of the BioIndustry Association, what the future has in store for the burgeoning biotechnology industry

'It is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.' This Churchillian sentiment could be said to sum up the role of the biotech sector in the vanguard of the war on disease.

Capital value of the sector is currently £20-25bn, of which biopharmaceuticals represent 75-85%, and it employs some 45,000 people. The industry has come a long way in a short time: 15 years ago it was little more than an embryo in university laboratories; now it is a strapping youth, looking forward with confidence to adulthood.

'Realistically, our short term hopes are in the products that are already in development,' said Crispin Kirkman, chief executive of the BioIndustry Association (BIA). 'Biotech will become a major player in the 21st century but products will be expensive at first, and, as usual, it will be the rich western markets who can afford to benefit. But biotechnology will cure diseases that have never seemed likely to be cured.'

elegant technology

So what is a biotechnology company? According to Kirkman: 'Everyone has their own definition, but I think it defines itself, in that the industry is comprised of people who want to club together, to use an understanding of life sciences to achieve a goal. They don't necessarily make a product, some wonder molecule; but it could be that by understanding at the microlevel how the body works, they make an intervention that may be perfectly conventional, but is much more targeted.'

By way of an example, he cited a company spun out of MRC Technology in Edinburgh. The company is focused on the hormonal changes affecting the reproductive systems, such as contraception and the menopause, but rather than adding hormones, it triggers the hypothalamus to make the body release the appropriate hormones naturally.

'The key is that they understand how the mechanism works,' said Kirkman.

This suggests that the biotechnology industry is leading the way in developing more elegant ways of treating illness and disease rather than pumping the body full of less-than-compatible drugs. Similarly, with medical device or drug delivery companies, it is not about producing a crude 'stick it in and hope it gets there' system, it is thinking about how to get the right amount of the right entity to the right place in the right condition. 'That's biotech, too; it's complementing understanding, in the way that psychiatry 30 years ago was behavioural rather than chemical or, indeed, biotechnological,' Kirkman commented.

Given that broad definition, how far along the production road does a biotech company go? In the current financial climate, people are re-examining their models, he said. A couple of years ago it was easy to raise money, you could come forward with a proposition that would go the whole way - given time. 'But in tougher climates investors are less patient - they want to see some sales.

'Indeed there are companies who buy in technology and sell it on. Under the current scrutiny you've got to be very clear within the model that you are adding value that an investor can get a return on in quite a short period of time,' he warned. 'If you develop a product from beginning to end, investors want a company also to have late stage products that are likely to sell soon in order to help pay for the r&d, or to have a side line that can be sold, like manufacturing, crystallisation, formulation or diagnostics, while you are working out the therapeutics.'

investor confidence

Strangely, although the cash flow has tightened, in 2001 the Techmark Mediscience Index out-performed most other market indices. Kirkman thought this was because the biotech sector has the promise of improving health, and need for better products at the end of it. 'Admittedly, in 2002 there was a downturn because investors were concerned about how long they'd have to hang in there to get a return, and IPOs and public investment just dried up.'

This could be a serious problem. 'The large pharma companies can rely on sales and cash to fund the r&d, so there is not such an exposure to investor confidence, but with biotech companies that is by and large all they have. Thus, lack of investor confidence hits young biotech companies much harder than it does the drug companies.'

The biotechnology industry in the UK is the second biggest in the world behind the US. European market capital is about one fifth that of the US, while the number of companies is roughly the same. 'And looking at technology transfer, the amount of commercialisation per research investment is far more efficient in the UK than in the US,' Kirkman suggests.

'This is because within Europe you need to put the money in intelligently. The biotech industry in Germany was a good example of what happens if money is just thrown at an industry. Many companies started up that didn't deserve the biotech name - they had no commercial goal or commercial product. They were a research programme hardly more than academic.

'Even among reasonable companies that had good propositions, many failed because they didn't have enough money to make it to the first milestone or have some IP with value where they could pick up more private investment.'

quality scientists

That is where making it too easy to start up is dangerous. 'Companies flop out of the starting blocks and go nowhere. A degree of fitness for purpose and intelligent stimulation is what is needed,' he emphasised. 'One positive aspect of the current economic situation is a convergence of thinking. Before, investors were prepared to risk money on a gamble, but now they delve deeper into the argument to see whether or not it is sustainable.'

Indeed, in the last two or three months the BIA has seen private money and venture capital starting to move into biotech, partly because prices are cheap: 'There is a bit of bottom-fishing - if the venture capitalists buy now, when the market picks up again they'll have real value.'

The industry is also fortunate in having a number of business angels and people with money who want to invest in biotechnology, both for a monetary return and the promise of the good things the investment brings healthwise.

Generally, however, the industry is a specialist market. 'There are very few specialist investors who understand the market well enough to differentiate been a good company and a poor bet.

'You need to understand the science, the health market, the business models, and all sorts of diverse factors,' Kirkman stressed. 'This means there are only a few main investors in Europe, and they are the ones who go on investing in the bad times because they understand the long term market. From an investment point of view, without the necessary experience, it is a tricky market to understand.'

Kirkman thought there were several roles for government within the sector. 'As with all science-based industry, we require a flow of top quality scientists. Also, because only a couple of companies in the sector have made it to the point of profitability, we depend on government to stimulate both the companies and investors through fiscal measures in particular, so the recent tax credit extensions are good news.'

However, he pointed out that the things that really make a difference to companies are the ones that help them with their cash flow. 'So things that help companies with down-the-track tax sums are not as welcome as things that help now with a lower bill.'

And there are still problems that government could solve. 'There is always the concern that, firstly, we are not investing enough in r&d, but secondly that r&d needs to be joined up,' Kirkman commented. He quoted the example of an orphan drug, which one government department wants to fast track for the good of the patients it will treat, while another department is saying it is anti-competitive. 'A bit of joined up government would do well here!'

Kirkman praised the recent House of Lords report on animal testing as 'a responsible report about a responsible industry', although he did voice some concerns. The BIA questions the creation of an external inspectorate to inspect the Home Office inspectors, who are highly respected in the industry for doing a thorough job, and who prosecute if they find something wrong.

'The report is important for the biotechnology industry because biotech companies have a small portfolio of products with few or no sales, and each chunk of investment is not much compared with the total cost of development. So if illegal animal protesting interferes with the ability to do business, that would hurt a small biotech company financially proportionally more than a large pharma company.'

The relationship between the biotech companies and their big pharma customers is gradually changing, said Kirkman. Although the pharma industry is the main market for biotech, the deals on offer can leave a lot to be desired. But now the boot is on the other foot, he feels. 'Pharma needs a pipeline, which we can supply, so we are seeing much more equitable deals. Pharmaceutical companies are making it very much easier for licensing, and developments include a repository where research knowledge can lie so that there is a precompetitive exchange of fundamental research to enable better platforms to develop.'

future promise

However, a move towards a joint venture attitude would do much to improve the relationship - a sense that the success of the product mattered to both. 'The big pharma companies are focused on the deliverables. They are so focused on the other end of their activities that to get the development end channelled through coherent lines of management is a challenge for them.'

Kirkman believes that biotechnology is going to be the industry of the 21st century. But it is going to take time, he cautions. 'It is astonishing that we still allow ourselves to talk about breakthroughs. A "breakthrough" is a small piece of a jigsaw, and it means that we have to find another piece and another piece before we have the whole picture.'

There was a phenomenal amount of investment in the human genome project, he says, yet people are now coming to realise that all we really have is a huge amount of data, and it's going to take a lot more work to interpret it. 'Then, and only then, can scientists begin to investigate the interaction with proteins, what diseases are they related to, and what functions they perform.'