Waiting for the drugs to work: biotech barons are battling on

Heather Tomlinson looks at the contrasting styles of the two men leading the industry in troubled times

"Just because someone cries 'Eureka!' in a lab, doesn't mean you have a cure for cancer. You only find that out eight years later," says Jeremy Curnock Cook, a well-known biotechnology investor.

Once a company has discovered a new drug or treatment, it takes a decade of scientific and clinical trials before it can go on the market. But many UK investors in biotechnology are getting tired of waiting. Since the late 1980s, up to £4bn of cash has been pumped into the sector in this country - but with minimal returns.

However, the top biotech entrep- reneurs have found ways around the funding problem. Sir Christopher Evans, chairman of fund manager Merlin Biosciences, and Dr Peter Fellner, chairman of Celltech as well as fallen angel British Biotech, are taking different approaches to building the sector in this country.

Sir Christopher raises money from institutional investors and has put it into 26 small biotechnology companies, such as ReNeuron, which uses foetal stem cells to develop treatments for neurological diseases including Alzheimer's. His company acts as an umbrella for the developing biotechs, and tries to help the scientists turn their experiments into a saleable product, away from the spotlight of the stock market. "It's a little bit easier in the private sector," he says. "You can make decisions, pick deals, make offers, negotiate and pull out without anyone caring."

The chirpy entrepreneur from South Wales made his name when he grew the value of genomics company Chiroscience from almost nothing to £200m in 1999, when it merged with Dr Fellner's Celltech.

In contrast, Dr Fellner has taken the route of creating a plc that has bought up other smaller companies to form the largest biotechnology group in the UK. Celltech will report interim results on Tuesday and is expected to announce profits of around £15m. The shy, serious biochemist began his career in pharmaceuticals, joining Celltech as chief executive in 1990. He has spent the intervening 13 years building a company made up of two parts.

One part, derived mainly from his £550m takeover of Medeva in 2000, makes run-of-the-mill products like cough mixture. They may be dull but they bring in cash that can then be used to fund the second part of the business: research for a wide variety treatments for diseases such as cancer, arthritis and asthma.

Celltech can also invest in the UK sector and take advantage of smaller companies' difficulties in raising money. Its £100m purchase of Oxford Glycosciences earlier this year scotched the merger plans of rival Cambridge Antibody Technology. Celltech also beat off interest from Sir Christopher himself.

In just six months at British Biotech, Dr Fellner has already snapped up biotechs RiboTargets and Vernalis, and industry observers say he is likely to buy more. The sector is deal hungry, as last week's merger between cancer specialists Xenova and KS Biomedix demonstrates.

Dr Fellner's background in pharmaceuticals has helped him develop his business model. "With that pharma head on, he recognised that one needs to continue to add to the asset base," says Mr Curnock Cook, who used to run Rothschild's life sciences private equity fund and is now seeking to raise £100m for Bioscience Managers, a new biotechnology fund. "Fellner is very much a man who understands failure happens, so you need to continue to bring on new assets.

"But Sir Christopher Evans is the ultimate entrepreneur, who recognises that you take bets on science, and it doesn't always work. You can get two strong successes, five mediocre and three failures out of every 10 investments."

However different their styles, both men use funds to buy a broad range of different products for their companies' pipelines so they can hedge their bets - and they realise that biotechnology investment is a gamble. "Both are in the casino," says Mr Curnock Cook. "Chris is playing on 10 tables, knowing that two will pay out handsomely. Fellner is on one table, spreading his bets around."

But even these two giants must face the scepticism of UK investors. Sir Christopher is currently raising money for his third biotechnology fund, and is finding that investors are unwilling to wait years for the science to turn into hard cash. "Although I have patience for it, [investors say] there is little point in investing £200m in loss-making companies that continue to burn research and development for 10 years," he admits. "We need to look to companies nearer to commercialisation."

And while Celltech had no trouble buying up OGS, the fall in its share price from over 1,000p at the turn of the century to around 360p means that snapping up other companies is not as easy as it once was.

In fact, many British investors and corporate financiers think UK biotechs will have to start looking across the Atlantic for investment. For example, Powderject, the vaccines company run by Dr Paul Drayson, has just been snapped up by US biotech Chiron for £542m.

"I'm suspecting that the whole British biotech sector's mission in life is to be a feeder to the US," says Sir Christopher. "Maybe we should sit back and enjoy it. It won't bring a new generation of British biotech companies that are British. They will just parcel off or go and float in America, because they feel nothing is happening over here.

"In the next five to six years [the UK market] will pay the price for what has happened over the last three years."

One of his successful investments, Microscience, is, he says, likely to be sold to a trade buyer such as a US biotech for as much as £500m, rather than being floated on the unsympathetic London stock market.

Although both have been successful in the biotechnology business, the two entrepreneurs face challenges in the future. Celltech's CDP 870 arthritis treatment is widely seen as the drug that could make or break confidence in the UK biotech sector. It is currently in phase III clinical trials.

Sir Christopher has five years or more left before he announces the returns he has made on his funds. A high rate of return would show that the UK sector can be profitable if the right investment decisions are made.

Both men have put the UK biotechnology industry on the map. But both still have a lot to prove to a sceptical City.