Cash-strapped biotechs to offer NHS profit-share

Industry body is seeking funding for clinical trials in return for revenues from new treatments

The cash-strapped biotech industry is to ask the NHS to help shoulder the cost of clinical trials in a radical move that would see the health service take a slice of revenues from any new drugs that emerge.

The BioIndustry Association, the sector's trade body, is in the early stages of putting together the proposal as the industry struggles to come up with new ways to get round its lack of resources.

"Funding is an important issue for our members," said the BIA's head of public affairs, Laura Gilbert, who is leading the proposal. "This is one way we are looking at filling that gap."

Patricia Hewitt, Secretary of State for Health, is trying to find ways to ease the NHS's crippling debt load, which has more than doubled over the past year to £512m. So the BIA's offer of profit-sharing on drugs that make it to the market - in exchange for money to help get them there - could be appealing.

Fostering the growth of the pharmaceutical and biotech sector is also a top priority for the Government, which is keen that Britain retains its position as the largest producer of prescription drugs after the US. Earlier this year, Gordon Brown asked the venture capitalist Sir David Cooksey to review the Government's £1.3bn health research budget in an effort to stimulate greater co-operation with the private sector on drug research and development. He is expected to publish his initial findings next month.

The BIA expects to submit its proposal in the autumn.

According to Ernst & Young, there are more than 400 biotech groups in the country, employing around 25,000 people and generating more than £3bn in annual revenues. Most of them, however, are loss-making and rely on venture capitalists and public investors to fund research; neither is particularly dependable. Public investors are quick to bolt when the market tumbles or there is a setback in the research process, and support among venture capitalists has been steadily declining. In 2004, venture capitalists invested €245m (£168m) in UK biotech, down from €294m the year before, according to research from industry body EuropaBio.

"The funding environment in the UK and Europe is definitely much more difficult than in the US," said Michael Aitkenhead, an Evolution Securities analyst.

Biotech companies find it hard to take potential treatments from the earliest research and development stages through years of clinical trials. The cash shortage means most find commercial partners, get taken over or go bust. In a recent research note, the investment bank Canaccord Adams described the clinical trial process as "long and tortuous" and suggested that many biotechs are likely to become takeover targets.

Some have already been bought. Novartis, for example, last week bought NeuTec Pharma for £305m, and last month AstraZeneca took out Cambridge Antibody Technology for £702m.