Curing the world’s ills

Edie Lush says UK biotech and medical research is world-class, but that start-ups face a challenge to raise capital and must think global from the start

If investors are nervous about putting money into medical devices – the ‘medtech’ market, for short – they’re even more wobbly about putting them into biotech. The general rule is that it takes around ten years for a new drug to be developed from idea to commercialisation – a long time for venture capitalists to tie up funds. ‘Devices have fewer hoops,’ says Alexander Macpherson, chief executive of Octopus Ventures. ‘The amount of money biotechs can burn through during discovery, clinical trials and regulatory hurdles before their product comes to market is legendary. There are lots of stories of biotech companies who have nine or ten funding rounds before the product comes to market. If you’re in the last round you’re laughing. If you got in around round four, it can be quite painful.’

For those who do stick it out, the rewards can be lucrative. Simon Shaw, former chief financial officer of medtech success story Gyrus, points out that in the US, the average medical device ‘from sticking plasters to MRI scanners’ has revenues of $3 million per annum – whereas the average pharmaceutical product has revenues of $120 million. ‘Drugs require significant investment to get from discovery to market. Once there, however, they generate a considerably larger revenue stream. Medical devices are both cheaper to invest in and more straightforward.’

The biotech industry still has its champions in the UK. David Pinniger, investment manager of the International Biotechnology Trust (IBT) at SV Life Sciences, sees plenty of reasons to support the industry. ‘Demographics are driving growth in healthcare spending. The UK population is becoming more educated about health, and has greater wealth to access healthcare. With ageing populations and the rapid growth in diseases related to consumer-driven life-styles – obesity, diabetes, cardio-vascular disease, cancer – the need for effective treatments is growing fast. The UK is producing some of the best medical science in the world.’ That said, most of IBT’s investments are in the US, partly because the biotech industry in the US is more mature, offering greater depth and breadth of opportunities. ‘I hope this will change over the next few years. The biotech industry in the UK needs more experienced investors who can allocate capital to the highest-quality science, and more experienced entrepreneurs who can create real clinical and commercial value from that investment.’