Biotech breakthroughs Britain failed to exploit

Leading players in the UK biotech sector say the market has failed to secure the industry's future and are calling for the government to step in. Steve Connor and Alistair Dawber report

One of the problems with using taxpayers' money to bail out the precariously placed banks this autumn is that other industries which find themselves troubled by the dire economy will also start knocking on the Treasury's door in pursuit of state aid.

The latest is the biotech sector. The life sciences industry is a graveyard of good ideas as, more often than not, those companies charged with making a commercial success of the ideas developed in university laboratories fall over long before the drugs get to market. It can happen for a variety of reasons, but in most cases it is the City deciding to stop funding after growing tired of setbacks and failed trials.

Enter the biotech entrepreneur Sir Christopher Evans, who last week, along with other leading players in the industry, wrote to the Prime Minister and Lord Mandelson, the Business Secretary, to ask for £500m of public money to go towards securing a future for the UK's beleaguered biotech sector.

"A lot of us have believed that we've been teetering on the edge of this abyss for too long and we are really looking down a deep, dark pit. What happens in 2009 should shape the industry forever," says Sir Christopher. "The Government has got to step in to counter a complete market failure. There is a complete failure now because there is no money anywhere. What's needed is cash – real, bold-action cash."

Every industry has had trouble attracting funds from risk-adverse institutional investors, but for biotech, this problem is particularly stark. Often a fledgling group will spend all its cash on trying to prove the efficacy of its treatments and when it runs out after an unexpected trial failure, it is forced to go back cap in hand to its investors for more money.

There are life science successes, with companies such as the critical care group BTG, which is profitable and is expected to enter the FTSE 250 in the next six months, now that its market capitalisation has topped £400m. Britain is, however, littered with examples of failure. As UK firms have found equity-raising almost impossible in the past six months, so several have collapsed and others have been teetering on the brink. Ardana, a firm that specialised in reproductive medicine, which listed in 2005, went into administration in June after burning its way through £43m of venture capital money. Within the last month, Phytopharm, a company that produces the appetite suppressant Hoodia, has said it is reviewing its future after a deal to supply Unilever with the Slimfast range of dietary products collapsed.

The phenomenon is not new. For the last 20 years or so university scientists have been encouraged to patent their discoveries, and some, such as Sir Greg Winter, the Cambridge University scientist who founded the gene sequencing company Cambridge Antibody Technology, which was eventually sold to AstraZeneca for £702m in 2006, became very wealthy.

But the UK even has a poor record for retaining the rights over those treatments that are found to work, despite its scientists winning 23 Nobel prizes in the last 40 years. Professor Sir David Lane of Dundee University, for example, is responsible for discovering BRCA1, the gene that leads to breast cancer. The find was patented in the UK, but it is the US life sciences company Myriad Genetics that now owns the intellectual property rights for the discovery.

There may be other UK success stories on the horizon, with positive trial data expected next year for Ark Therapeutics, a gene-based medicine group, and GW Pharmaceutical, which is famous for developing treatments from the cannabis plant. To date, however, only FTSE 250-listed Shire Pharmaceutical can claim to have emerged as a successful and independent UK biotech company.

Sir Christopher's bid for a biotech bailout also has a self-help element. He is asking for the Government's money to be matched by the market to "ensure substantial national focus during the next three to five years where the industry will encounter very serious difficulties".

The Department for Business and 10 Downing Street said yesterday that it is too early to respond to the request, but Sir Christopher reckons that intervention now would bear considerable fruit. "With £500m from government matched by another £500m from private investors here and a further billion or two from abroad you'd be looking at £3bn in cash that has somehow materialised from around the world, which would be invested in British companies. Gordon Brown would be a hero."

Troubled companies Good ideas but too little cash

*Skyepharma

The drug delivery system group Skyepharma has a product, in asthma inhaler Flutiform, which looks like a winner and has enabled the company to sign licensing deals with the likes of Japan's Kyorin Pharmaceuticals. Sadly, Skyepharma is saddled with £89m of convertible bonds, the terms of which it has been forced to renegotiate with bondholders over the last year. While call dates on the bonds have been pushed back to 2013 at the earliest, the group has not recovered from losing nearly 80 per cent of its value.

*Phytopharm

Last month Unilever abandoned plans to help Phytopharm develop the appetite suppressant Hoodia, based on the plant, right. The plan was to use Hoodia in Unilever's Slimfast range, but the two were found not to be compatible. While the company remains solvent and is embarking on testing other drugs, the loss of the deal led to group's value falling by 50 per cent.

*Ardana

The reproductive medicine group brought in the administrator in June after getting through £43m after listing in spring 2005. The company had some success with testosterone products, but burnt the cash too quickly and was left in the cold when it could not convince investors that it had a commercial future.

*Phoqus

A month after Ardana called in the administrators, so did the speciality biotech group Phoqus. It had desperately tried to find a partner for its promising lead product, Chronocort, used to treat cortisol deficiency. Sadly, it could not, and the company went to the wall.

*PPL Therapeutics

The company grabbed the headlines in 1996 when it cloned Dolly the Sheep, right. Others stepped up to the plate with horses and bulls following Dolly, but sadly for the groundbreaking company it went the same way as its famous exploit and collapsed in 2004.

*BRCA1Last month the European Patent Office upheld the US group Myriad Genetics' intellectual property rights over the breast cancer gene BRCA1. The discovery of BRCA1 was made by a team led by Professor Sir David Lane at Dundee University. The rights had been sold to strengthen the gene's prospects and is now lost to UK biotech.