Using our experience of failure to drive forward miracles

Paul Rodgers examines the strengths and weaknesses of biotechnology in Britain

Curing the blind is the most dramatic of miracles, performed by Jesus on four occasions, says the Bible. Biotechnologists added their own version last month when an experimental gene therapy developed at University College London (UCL) restored the sight of Steven Howarth of Bolton. Biotechnology is rapidly becoming not just another tool in the hands of doctors but their primary means of doing the impossible.
But while the UCL case illustrates the huge potential of biotechnology to improve people's lives, it also points to the greatest threat facing the British biotech industry - that it will be seduced into moving to America. The same journal that carried the UCL team's results also had a paper from a US team doing similar work. Any company wanting to capitalise on the idea has a choice of where to settle.
"At every competitive level, the US performs even more strongly than the UK," warned Sir David Cooksey's Bioscience Innovation and Growth Team in "Bioscience 2015", its seminal 2003 report to the government. "The risk is that the bioscience sector will simply relocate to the US, attracted to the world's largest end-market, the critical mass of established, profitable companies, the deep talent pool, and the generous funding from the $27bn (£13.5bn) annual budget of the National Institutes of Health, through to the most developed public capital markets for technology in the world in Nasdaq."

One of the few advantages Britain has over America is the NHS, a large resource for clinical trials and a huge single customer. As a driver of biotechnology though, it has not lived up to its potential, said Sir David. Another is that the established pharmaceutical industry in Britain is strong. But big pharma has its own problems, with costs rising and makers of generics eating into sales. Companies must finely balance the costs of refilling their product pipelines with patentable modifications of their existing drugs (the relatively cheap option) or a potentially expensive punt on a new but unproven drug from a smaller biotech company.

The British biotechnology sector is Europe's biggest and is second in the world, after America's. In 2005, it boasted over 500 companies, employed 22,000 people, many of them highly skilled, and had earnings of £2.6bn, according to estimates from the BioIndustry Association. In addition, it is growing fast - by one-third annually, in terms of employment, and by almost one-half in terms of revenue. Yet, according to Ernst & Young, depending on how you measure it, America's industry is between five and 20 times bigger still.

These figures are admittedly arguable. "Biotechnology" is an amorphous phrase. By some definitions it began millennia ago with the fermentation of alcohol. A broad definition today would include companies dedicated to increasing crop yields through genetic modification and even some that produce biofuels. Take too narrow a view and you leave out second-tier companies, those which provide the expertise, the equipment and in some cases even the molecular building blocks that make the work of drug-development companies possible. For example, Domantis, a Cambridge company acquired by GlaxoSmithKlein for £230m last year, has a library of 10 billion genetic sequences for domain antibodies, small molecules which when incorporated into other pharmaceuticals help them target particular cells.

A working definition of a biotech company might be one which is involved, either directly or in a supporting role, with the application of molecular knowledge of how cells work to human medicine, from cures for nail fungi to cancer. Its sub-sectors would include stem cells, which have not yet become specialised tissues; gene therapy, where new DNA is spliced into existing human genes; advanced diagnostic tests using molecular markers and the tailoring of treatments to fit an individual's particular genetic blueprint.

Britain's biotechnology industry has sound roots. In the 40 years to 2003, Britons won 23 Nobel prizes for biomedical research, including the 1962 laureates awarded to Francis Crick and James Watson of Cambridge University for exposing DNA's double-helix, the discovery of which made modern biotechnology possible. Most start-ups filling biotech incubators from London to Glasgow are still spin-offs from university research laboratories or teaching hospitals. However, while it is generally agreed that the science in Britain is top notch, the sector is plagued by two great weaknesses.

The first is finance. The cost of developing new drugs has soared over the past three decades. According to the Tufts Center for the Study of Drug Development, research and development costs have risen 12-fold in inflation-adjusted terms, while the number of new "clinical entities" approved for use in the US merely doubled. Part of this is because the time it takes to get approval has risen; clinical trials in the early 1980s took an average of 30 weeks, now they take more than 70. However, most of the average cost of developing a new drug is spent on the candidates that don't make it.

This is a problem for City investors, who don't tolerate failure as well as their counterparts on Wall Street. All it takes to send shivers down fund managers' spines is for a high-profile drug to disappoint in clinical tests, as happened last month with Digoxin Immune Fab, a treatment being tested by Protherics, a London-based biotechnology company. Though the treatment for pre-eclampsia, a leading cause of death in pregnancy, did help kidney function, it failed to make much difference to blood pressure.

At least this drug made it to trial. As the credit crunch batters financial institutions, they are raising their demands of biotech companies. This has a knock-on effect. If venture capitalists can't see an exit, through flotation or a sale to a larger company, they become reluctant to invest. And many start-ups have trouble making their case. "Biotechnology 2015" warned that strong ideas were falling into an unfunded chasm between the initial grant-supported research in universities and the point at which venture capitalists could be persuaded to provide cash. Among its recommendations was a call for investment "in the 'bridge' between idea generation and commercial financing".

Management is the other weakness. "Commercially skilled scientists will be vital for building a successful bioscience sector," notes Biotechnology 2015. "But most doctoral level scientists do not instinctively reach out for a business education." Researchers are happier in their labs than in the boardroom, wrestling with their "burn rate" - how quickly they spend. The failure of many start-ups is not because of bad ideas, but because they simply run out of money. Tolerance of failure is important at this level too. Managers who have seen one start-up company fail will be better placed to lead a successful venture on the second or third attempt, if they're given the chance.

Sir David announced in January that he will be reviewing how Britain's biotech sector is moving towards the goals he set five years ago. He's sure to find more companies, more employees, more drugs and more revenues. But it is this growth itself that will put pressure on managers and financiers, and make American shores look even more attractive.