Game-changer: A new plan takes shape to spur the U.K.'s biotech cluster

LONDON--The common wisdom about the U.K.'s life sciences industry has been set in stone for years now. Great drug science is ingrained in the country's stellar academic centers, building on decades of outstanding lab work. But the biotech industry has never achieved the kind of success that the science would seemingly portend, unable to spawn the development of a key cluster like Cambridge/Boston and the sprawling San Francisco Bay Area life sciences hub.

A string of high-profile failures four or five years ago caused the investment community to shun the field as too risky. And even some recent IPO successes can't change the fact that Nasdaq still looks far more appealing than the London Stock Exchange for raising cash, especially as the Americans are now romping their way into the third year of a frothy IPO market.

Biotech startups here tend to be rather rare. The talent pool of executives is too shallow and the current generation often has to get by with some micro financing that isn't enough to ramp up operations nearly quickly enough. Most American VCs, with the exception of some outfits like New Enterprise Associates and Fidelity Biosciences, tend to see the U.K. as just too far afield. And a number don't really care to travel further than down the hall for a board meeting.

Ask for evidence of change on the financing front and you get Merck's ($MRK) recently announced plans to invest $62 million over the next three years with some new licensing plans and increased research work. That follows the opening of J&J ($JNJ) Innovation's London operations. And while that's all to the good, neither Big Pharma company can make a splash with the kind of seed money they're talking about.

If you really want to spark a revolution in the London/Cambridge/Oxford cluster, you'll need about a billion new dollars--or roughly 600 million-plus sterling in near-term cash. A year ago that would have sounded like a pipe dream. But this week in London, you can see tangible evidence that that revolution may not be so far-fetched as it would seem at first. And it revolves around three key trends.

Neil Woodford
  • New money: Jim Mellon and Neil Woodford, two high-profile investors that command a lot of attention here, are both floating plans to raise money through publicly traded trusts, much of which will ultimately be devoted to fledgling life science companies. Mellon is looking for up to $150 million while Woodford is shooting for around $300 million. That's real money, and it's the kind of money that follows a Warren Buffett approach to investing, with long term investments going to private as well as public players. The billionaire Mellon has a rep for the radical to begin with, which helps. And Invesco-vet Woodford oozes the kind of sound money management history that The City loves. British investors may not go into biotech alone, but they will follow these two figures.
  • Jim Mellon
    Convergence: Woodford and Mellon by themselves don't represent enough new money to act as a major catalyst. But they are talking about enough money to attract a greater share of the attention of U.S. VCs, which have been raising billions of dollars now in search of early-stage investments. Late-stage work is being advanced with money from public markets, as billions of dollars in IPOs and follow-ons attest to. Top science from prominent academics is now the main allure for early-stage investing. And the U.K. has that, if not the kind of entrepreneurial relationships that scientists like Gregory Verdine and Robert Langer have in Boston. The U.S. biotech industry has also matured over the last 10 years, becoming a more reliable new tech venture, and the U.K. could learn from that experience. Add more venture cash to the groups already at work here, and you're talking real money.
  • George Freeman
    A new government initiative: The U.K.'s minister for the life sciences, the ubiquitous George Freeman, is hatching plans with his Conservative colleagues to speed up development of drugs in the U.K., pushing a new program similar to the FDA's breakthrough drug program while carving out a direct R&D path to the market here--with reimbursements that could prove attractive to U.K. companies as well as the U.S. biotechs looking to gain some early credibility. Political commitments may wax and wane on either side of the Atlantic, but in the U.K. the prominent parties tend to stick behind business initiatives. And after AstraZeneca ($AZN) shooed Pfizer ($PFE) away, the country has shown some clear popular support for building the industry. Government projects rarely spur revolutions, but it's a good time to give it a try.

Freeman is virtually unique in the political field; a politician with a professional background in investing in life sciences. (He worked with Chris Evans. "Vectura," he told me a few days ago, "started as a single sheet of paper on my desk.") The key difference that the government can make, Freeman told me this week, is to reduce the time it takes to develop a new drug. Not all the details have been worked out, though, and I'll be getting back to this topic more in depth at a later point.

A few days ago I talked about this topic with Anja Koenig at Novartis Venture Funds, Kevin Johnson from Index and David Phillips at SR One at a venue in the East End. It was a frank exchange, which the biotech audience at the Queen Mary Innovation Centre seemed to appreciate. Koenig made the point that there is growing competition among investors for the right kind of drug research--a key strength that the U.K. can play on.

During the exchange I got a pretty good laugh from one line: "European investors never forget and Americans never seem to remember."

I'd say it's exactly the right time for a game-changing approach that can put that dichotomy to work for the U.K. And done right, barring another financial debacle a la 2008, this tech revolution wouldn't need a full generation to play out. If the next 10 years really is biotech's time to shine, now is the time to move. -- John Carroll (email | Twitter)

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