Jun 28, 2016
Policy Exchange invites you to the launch of Science, the State, and the City: Britain’s Struggle to Succeed in Biotechnology by Sir Geoffrey Owen and Michael Hopkins.
Sir Geoffrey Owen in conversation with Matt Ridley
Vote of Thanks by George Freeman MP, Life Sciences Minister
Sir Geoffrey Owen is a leading authority on British industry and the former Editor of The Financial Times. He is now Senior Fellow at the Department of Management at the London School of Economics.
His books include The rise and fall of great companies: Courtaulds and the reshaping of the man-made fibres industry, Industry in the USA and From Empire to Europe: the decline and revival of British industry since the second world war.
Introduction: Matt Ridley
Ladies and gentlemen, please take your seats and welcome to Sir Geoffrey Owen, former editor of the Financial Times, Fellow of the London School of Economics and author of a book, Science, the State and the City: Britain’s Struggle to Succeed in Biotechnology. It’s a particularly interesting book, I think. I’ve been spellbound by it recently, reading it and I’m looking forward to hearing what Sir Geoffrey’s going to say. He’s going to talk for about ten minutes and I will then grill him, Paxman style, followed by questions from all of you when the time comes. So ladies and gentlemen, Sir Geoffrey Owen.
Sir Geoffrey Owen
Thank you very much. Now when people think about weaknesses in British industry, they often lament the absence of world-leading companies in new high-technology industries, no counterparts to the Apples, Googles and Amazon of the United States. Now there’s no shortage of start-ups in these industries, but very few of them become medium-sized or large. Why should this be? Should we mind about it? And if we do mind, what should we do about it?
That’s the context in which Michael Hopkins, my co-author, and I have been looking at biotechnology, which is another sector where the big winners have been American companies like Amgen, Biogen, Gilead, while British firms have, for the most part, been lagging behind. So we’re going to have a conversation about this in a moment but I thought it would be useful just to say a little bit of background about the biotechnology story.
Biotechnology refers to a set of techniques based on advances in molecular biology and genetics, which came to the fore in the 1970s and made possible a new approach to the development of drugs, development of medicines. It was a very different approach from the chemistry-based methods on which the established pharmaceutical companies, sometimes called ‘big pharma’ had mainly relied, and partly for that reason the field was left open for new entrants, newcomers to the drug development business. Newly formed US firms mostly founded or cofounded by academic scientists were quick to exploit the new techniques and they established an early lead which was consolidated and extended over the subsequent decades creating a US biotech sector which was much larger, more profitable and more innovative than its counterparts in any other country. Several of today’s biggest selling drugs for cancer, multiple sclerosis and other diseases have come out of US biotech. Now among other countries the UK seemed well-placed to follow the American lead, not least because British scientists had been responsible for some of the key scientific breakthroughs on which biotechnology was based. Francis Crick, co-discoverer of the double-helix structure of DNA, is probably the best known of the numerous British Nobel Prize winners in this field. Fred Sanger, pioneer in gene sequencing, is another.
The first British biotech firm, called Celltech, was created by the Thatcher government in 1980 to commercialise research that was coming out of the laboratory of molecular biology in Cambridge, and several scientist entrepreneurs followed Celltech’s lead and by the mid-90s a viable British biotech sector seemed to be taking shape, well supported by local investors. Then came a series of setbacks. Several of the most highly valued firms fell to earth when their drugs failed in clinical trials. The most famous case was a much hyped cancer drug being developed by a company that had perhaps the slightly unfortunate name, since it gave the impression that the whole sector was failing, namely British Biotechnology. This was perhaps an extreme case of a fall from grace, but the main problem was that there were too many failure and no really big successes comparable to Genentech or Amgen in the United States. And what followed after that was an investor retreat. From the early 2000s onwards the flow of funds into the sector was greatly reduced, there were virtually no biotech flotations on the London stock market and several of the more promising firms either emigrated to the United States or were bought up by big pharma companies.
The first signs of a recovery came in 2014, thanks in part to an extraordinary biotech boom that was going on in the United States and which spilled over to some extent into Europe. Some early stage British firms, notably those working on how to use the immune system to combat cancer, attracted substantial funds from US investors, US venture capitalists. There was a partial revival of biotech flotations in London but that boom has now faded and the gap between the UK and the US in biotechnology is wider than ever.
Why didn’t we do better? Now that’s a question which we will probably want to discuss tonight, and just to start the discussion, I’d like to mention three issues, which relate to biotechnology but also have a relevance to other science-based industries. First, was the growth of biotech in the UK held back by a systemic tendency in the City of London towards short-termism; that is to say, the reluctance of institutional investors, fund managers, to back firms whose research will only pay off, if it pays off at all, over the long term? Second, could governments have done more to support the biotech sector, and to the extent that the government did intervene, as it did in the Celltech case that I just mentioned, was that intervention helpful or unhelpful? Third, and this is a topic that is not discussed in the book but seems relevant today, it’s worth noting that the biotechnology sector emerged just as the UK joined the European Economic Community. Has membership of the European Union been good or bad for the biotech sector? I’ll leave it at that and hand over to Matt.
Thank you very much indeed, Geoffrey, that was fascinating, and I had at one stage offered to Geoffrey that we could make this evening a Brexit-free zone.
But he’s refused that with his last point, and that’s welcome too.
Can I start just by going back to this point that we’re good at discovering but not so good at applying and when you run through the list of molecular biology discoveries made in this country it is quite extraordinary really, how much we have contributed as a relatively small country with whatever it is, 3% of the world’s population, maybe less, I don’t know. The double helix, DNA sequencing by Sanger; monoclonal antibodies; DNA fingerprinting, invented in Leicester by Alec Jeffreys, which is now everywhere, in forensics, in paternity testing, in everything; with the biggest single slice of the human genome project was done in Cambridge, the Wellcome did more than any other individual institution; cloning, Dolly the sheep and so on; the mitochondrial donation story we were discussing in parliament last year. So it’s not as if we’re in this position of say France or Germany or Japan where they’ve not been a huge contributor to the molecular biological science … they’ve made important contributions and unfortunately CRISPR is not a British story at all. It’s almost every other country’s story than ours, but nonetheless we were there in the science almost more than America, and yet we’ve not been able to come out with this. So is this a typical British story that we discover and others apply, or is there something particular about molecular biology?
Sir Geoffrey Owen
Well I’ve been a bit reluctant, we were reluctant in the book to try and draw too many lessons from the biotech story, because I think there are quite a few special features of it which are not easily generalisable. But to answer your question in relating to biotechnology, two of the key innovations that were made by scientists in the 1970s, oen was this thing called the recombinant DNA technique or cloning, genetic engineering, which was invented in the United States, or discovered in the United States in California, and the other, which came a couple of years later, was the monoclonal antibody, which came out of the Laboratory of Molecular Biology in Cambridge. Now for a mixture of reasons, and maybe there was an element of luck in it, recombinant DNA proved to be relatively … I wouldn’t say easy but it was quickly converted into drugs, into medicines, and the first drugs that came out of this recombinant DNA technique were genetically engineered versions of existing proteins, of existing drugs, insulin being the best-known example, which was developed by Genentech. Monoclonal antibodies proved to be much, much more difficult to convert into drugs that patients could take. There was a problem about the mouse-origins and it wasn’t really until the mid-nineties that monoclonal antibody-based drugs got well-established and they became a hugely important part of the drug market. So there was an element of timing there and some people say that the Americans had the low-hanging fruit, which they picked quite quickly, make a big success of them, they got them approved by the Food and Drug Administration quite quickly and made money, so investors got enthusiastic and that set off almost a cycle of success. So I think that was one ingredient.
Of course there are other factors at work in those days, thinking about seventies and eighties, much more highly-developed venture capital industry in the United States, there was a NASDAQ stock market that was well organised, well equipped to accommodate early-stage loss-making firms and so on, so it was a mixture of factors.
You define four factors that are necessary for a biotechnology sector: strong universities, strong academic research, technology transfer policies (and in particular in America the Bayh-Dole Act and things like that, which enabled universities to capture the intellectual property on discoveries); the availability of capital; and a strong pharmaceutical sector.
On the whole we tend to think that capital is our weak spot in that foursome, either because it’s short-termist, which you mentioned, but also because the quantums are never there; in other words, companies that in America would be raising $100 million, here are offered 4 or 5 and so never get the chance to go big. Does that ring a bell?
Sir Geoffrey Owen
Well … in the first phase of UK biotech, which started I suppose in 1980, and that was when Celltech was formed and a number of other companies were formed in the rest of that decade, then in 1993 the London Stock Market changed its rules to allow early-stage loss-making biotech firms to get a listing on the stock market, and several British companies attracted large sums of money from both British and from foreign investors. So to take the example that I mentioned, British Biotech, or British Biotechnology, that was a very well-financed company, got several … even before it went public it raised large sums of money, and I don’t think … it’s hard to argue that these setbacks that I mentioned towards the end of the nineties and early 2000s were due to lack of funding. I think the short-termism is … shall I just say a couple of things about short-termism?
Sir Geoffrey Owen
I think that’s a very difficult area and there is one extremely influential investor, probably familiar to many of you, Neil Woodford, who used to be with Invesco and now runs his own investment firm. Very successful, very highly respected investor, and he has been a rather passionate critic of the rest of the fund management industry for losing faith in biotech, and he, Woodford, is prepared to wait 10 years or more, prepared to back a start-up firm and see it while it’s unquoted and then see it through to the IPO, so he thinks that short-termism is, if not a main problem, a big problem.
The thing is, what I find difficult about that argument is that if you look at long-termist countries, countries that are famous for their long-term approach to investment, financial system, such as Germany and Japan, they have performed rather poorly in this area. Very few US-style biotechs that have made it on a big scale. The US, one might say, is the home of short-termism. The US financial system is constantly being attacked for too much focus on the next quarterly results, activist investors demanding share buybacks and so on, so this, the short-termist country, has been outstandingly successful in biotech. So obviously there’s more that could be said about that, but I think the main point I tried to get across in the book is that short-termism doesn’t appear to be the root of the problem, and that there are other factors that underpin American success in biotech.
We shouldn’t beat ourselves up too much because compared with other European countries and, as you say, Japan, we have a string of quite successful biotech companies, and if you look at … I think you list the top 15 in Europe, we have five of them. Switzerland has the biggest, I can’t remember its name, begins with A.
Sir Geoffrey Owen
Actelion, but we have Shire and Solexa and Cambridge Antibody Technology. We have success stories. Could you also make an argument that America has simply wasted more money? i.e. there have been an awful lot of failures in America too and I remember once reading the case being made that actually the net return on biotech was pretty close to zero, even in the US. In other words, there were some huge successes and some huge failures and they’ve basically cancelled themselves out. They money put in had roughly been got back in products. That may have been a few years ago, it surely looks better now.
Sir Geoffrey Owen
I think it does look better now and the analyst in America whom I mostly rely on has, I think in 2013, before actually this current boom started, produced a detailed paper showing that the biotech sector had now reached a profitable stage. But I think obviously there are lots of things one can criticise about the US. I mean there’s the whole pricing issue. Gilead, the company I mentioned, which is the shooting star of American biotech, produced this treatment for Hepatitis C and tremendous upset around the place, Hilary Clinton objecting and so on to the price that was charged. So there are aspects of the American healthcare system which are not necessarily to be imitated.
But just on the point you mentioned, you mentioned Shire in passing there, which I think is an interesting case, because Shire was founded in the first wave of British Biotech firms, again ’86 or ’87, then it went public in the early nineties, and they have adopted the policy of acquiring things, acquiring companies, mostly in America. Their link to the UK, certainly they’re link to the UK science base is very, very limited and they’ve done extremely well. They have focussed on so-called orphan diseases with small patient populations which are not so exposed to competition from big pharma, and they’ve made a series of acquisitions over the last 20 years which have lifted them into very high in the rankings. So it’s a success, one could say it’s a British success, even though they left London to domicile in Ireland, but it’s certainly British origin. I think in a way the focus of, rightly or wrongly we focus more on UK science as the starting point for companies and how [20:02 IA].
And just to say perhaps one other thing, you mentioned Cambridge Antibody Technology, which was bought by AstraZeneca, and that is certainly not to be described as a failure. AstraZeneca wanted to acquire and absorb monoclonal antibody technology and Cambridge Antibody severed that purpose.
You mentioned Neil Woodford and when reading about him in your book I suddenly had a thought that it reminded me of the obituary I’d recently read of Tom Perkins, because what Tom Perkins of Kleiner Perkins in Silicon Valley did, not just in biotech but of course he did become chairman of Genentech and he was an early-stage investor, was he turned venture capital from just a financial engineering thing into a, ‘I’m going to find young companies and nurture them into big companies,’ which wasn’t an automatic thing for venture capital to do, and possibly hadn’t been done here until recently. An awful lot of venture capital in this country isn’t really venture capital, it’s just financial engineering, would you say? Is Neil Woodford … sorry, this is a very long, complicated question, is Neil Woodford doing for British Biotech what Tom Perkins did for American?
Sir Geoffrey Owen
I would say not. He’s an investor, not a venture capitalist. He backs firms pretty much on his own judgement. He judges the quality of the people, have they done it before, does the business plan look feasible and so on. As far as I’m aware he rarely if ever sits on the board of these companies and some people say, and I’m really no judge of this, that he doesn’t have the depth of expertise, scientific expertise around him that a corresponding American investor specialising in biotech might have. That’s what is sometimes said. But I think what you’re completely right to say, that we haven’t had a Tom Perkins. Tom Perkins is a classic venture capitalist who, as you say, is much more than a financier. He had an industrial background himself, not a financial … I think he worked for Hewlett Packard or somebody like that, and I think that is a legitimate criticism of British … but even so, I think that one would qualify that because probably one of the most successful British venture capital firms is a company called Abingworth, which invests all over the world, not just in the UK, and they’re quite an impressive group and they have quite a lot of talent, scientific, financial and other talent. It’s just a much smaller venture capital sector.
You mentioned government and we’re in the fortunate position that the Life Sciences Minister, George Freeman, is here and is going to say a vote of thanks at the end, but I was also struck, reading your book, by how many TLAs (that is three letter acronyms) we’ve had over the years for government … three letter acronyms.
I mean how many government bodies known by their initials there have been, and it’s probably a habit of government to invent something to try and help industry. There was the National Enterprise Board, there was the NRDC, there was the BTG (the British Technology Group), there was something called BIGT, which I’d forgotten about, and I can’t remember what BIGT stood for.
Sir Geoffrey Owen
Bioscience something or other … I can’t remember.
Growth something … yeah, exactly.
And then the TSB, the Technology Strategy Board, which is now known as Innovate UK, etc.
Are we floundering around, constantly reinventing this wheel of government, or are we getting better at it?
Sir Geoffrey Owen
Well, I think it’s interesting. I mentioned the formation of Celltech in 1980, rather a surprising decision from the Thatcher government, which accepted a proposal from the National Enterprise Board, which had been a labour creation, that a new company with some government funding would be helpful in getting the thing started. But I think one could say that in the period from 1980 to the end of the ‘90s, while Conservative governments were in power, the government’s policy towards biotech was not … how to put it, selective, or not targeted. What the Thatcher government and its successors did was try to improve the environment for all science-based firms, encourage investors (with tax incentives) to put money into early-stage firms, encourage universities to commercialise their discoveries, and of course support the science base and so on.
It’s only in the last few years, and particularly as a result of a financial crisis of 2008/09, that Industrial Policy in this country towards biotech has become much more active, and so we have, under the present government, a life sciences strategy and various –
A Life Sciences Minister.
Sir Geoffrey Owen
And a Life Sciences Minister, and we have new entities have been formed, one of which being this Biomedical Catalyst, which can give grants too, and so on. So it has become a little bit more … not like old-style Labour industrial policy but –
But it’s not winner picking?
Sir Geoffrey Owen
It’s not winner picking, maybe a tiny bit of winner picking through this biomedical catalyst, but no, it’s not national champion type stuff, as in the sixties and seventies, and certainly people in the industry, for the most part, like it. They think that’s good, they think it’s helpful, they’re slightly worried there seems to be some uncertainty about what Innovate UK, what’s going to happen. Innovate UK is going to be merged with the Research Councils and –
There’s a lot of disquiet.
Sir Geoffrey Owen
And some people are uncertain about that, but I think it’s a bit too early to say that this more active policy has so far produced big results, and maybe just worth mentioning one other thing, possibly the Minister might say something about this, the other issue which is very much discussed in the industry, is is it possible to make the National Health Service more receptive to innovative drugs? In other words, can one do something about –
It’s one of George’s big themes.
Sir Geoffrey Owen
– can one do something about the market in the UK that would be a stimulus to these firms?
One more question from me and then I’ll ask for questions from the floor. You mostly confine yourself first of all to medical biotechnology and indeed to drug development, and that, of course, isn’t the whole of biotechnology. There is agricultural biotechnology, there’s forensic biotechnology, and of course there’s the techniques that go into biotechnology, and some one of our biggest success stories in this country, Solexa, late bought by Illumina, was essentially a rapid sequencing technique, nothing to do with producing a product.
Do the same stories apply in those areas? I mean the ag biotech sector, the reason we didn’t produce a Monsanto or a Syngenta arguably is because of public opposition to GMOs and so on.
Sir Geoffrey Owen
Well, I mean we took a decision not to enter into the agriculture area. I think the Solexa case is interesting. As you say, it’s not a drug development company but a sequencing company, and it’s often cited as an example of a company which was ‘lost,’ in quotes, to the United States, and some people say that this was an absolutely wonderful technology which those fellows in Cambridgeshire developed, and why did it have to be bought by Illumina? Well, it emigrated, partially emigrated to the United States.
I think that’s misleading in many ways, because the heart of the sequencing research, as far as I’m aware, continues to be in the UK. And so Illumina, although they own Solexa, rely very heavily for this part of their business, which is a very large part of their business, on British-based science.
A similar example is the purchase recently by Intrexon of Oxitec, Oxitec being the genetically modified insects company that spun out of Oxford University and has a fantastic technology and looks like it’s in a good position to help with Zika, so the timing was good there.
Right, so I’d like to see a hand up. The lady there.
I [30:04 IA]. One of the things I research on is the actual training of scientists themselves. I know one [30:14 IA] state school in the UK. He’s doing a scientific degree but in his first year he’s been asked to come up with a biotech idea they could spin off perhaps into an industry, and I just feel that [30:35 IA] be able to understand what’s going to make a good product, how to [30:45] biotech company to do it. I’m going back to when I did biochemistry [30:49 IA], but I’ll give you another example. I was at an alumni association for Washington University in St Louis and Steven Sands, who is a [31:08 IA] alumni, to say how can you [31:15 IA] growth in the biotechnology sector at Washington University? I was very impressed. [31:21 IA] and then he was able to say, ‘OK, I’m [31:27 IA]’ and they had a little competition where 17-year-olds who [31:33 IA] the people who won it had a tin-foil blanket for babies with jaundice, and I was so amazed by the ingenuity of these students. And I’m not being [31:46 IA] in this country. I just don’t think we have the same … expectations of people that age. And I’m interested in if there’s any way to change that culture?
Another [32:01] question, for people who are [32:05 IA] venture capitals. Now they get some of it from the government but it does put the onus on [32:24] people, and I’m just wondering, should we tap into that [32:28]?
Good question. What’s your response to that?
Sir Geoffrey Owen
Well, in doing this book we interviewed a large number of scientists around the UK, and most of them had started or helped to start new firms. I don’t know, this may be wrong, but I’m not certain whether it’s right to say that our scientists are less entrepreneurial than their American counterparts. I think one of the big problems that we have, and this is partly a scale factor, that in Boston for example, if you’re at MIT or Harvard or whatever, around you, you’ve probably got 15 or 20 academics who have spent time in biotech firms, come back to academia, made money, and so you’ve got so many role models that are inspiring to the young scientists that you’ve been describing. And take for example one very successful scientist, called Gregory Winter. Now here’s a question: how many people in this room have heard of Gregory Winter?
Three people have heard of Gregory Winter. The most outstandingly successful biotech scientist/entrepreneur that this country, I would say … maybe one can thing of others but that this country has produced. He’s currently on his third start-up.
Bicycle is his latest one, is it?
Sir Geoffrey Owen
Cambridge Antibody Technology was his first one.
Sir Geoffrey Owen
Yes, then he had Domantis, which was sold to GlaxoSmithKline. The very fact that this well-informed audience have never heard of him, OK, he probably isn’t as rich as Richard Branson or somebody but he’s still … I don’t know, maybe he is, I’m not sure. I would doubt it, but …
And he’s real.
Sir Geoffrey Owen
This is the problem, and I think as I mentioned briefly at the start we went through this rather lean period between early 2000s and so there were probably fewer opportunities available. Of course I completely agree that we need to encourage much more of the activity that you’ve been describing, and I think actually my impression is that some of the big pharma companies, big pharmaceutical companies, including Johnson & Johnson incidentally, have established … I don’t quite know what they’re called, technology officers or something in the UK, who spend a lot of time trying to cultivate potential entrepreneurs, so I think it’s not so bad. It’s not so bad but we could do with many more.
I’m going to call Charles Akle, who’s the founder of Immodulon Therapeutics.
Charles Akle, Founder, Immodulon Therapeutics
I think it’s a fantastic book and you’ve put it very nicely. The standard position, the default position for small biotech [35:46] is you have a bright idea, you get it through preclinical, phase I, one of the big pharmaceuticals who’s got the deep pockets then comes and takes it over, gives you some money or dilutes you, takes it to market or not as the case may be, and Bob’s your uncle, and there is no other, really, thought process here, which is a shame.
What you need is the analogy of your low-hanging fruit, you sew a lot of seeds, and we’ve got plenty of seeds in this country, as you well know; there’s no shortage of talent. The kids are bright as anything, there is plenty. What happens is you hit this dead phase where you may have a proof of concept as we have, and then you have to take it into what’s called a phase III which [36:25 IA]. You can’t earn any money as a small start-up biotech until you do a phase III [36:33 IA] all the rest of it, but the NHRA have tended to be very helpful. And even more successful companies that you’ve talked about, the low-hanging fruit, Shire has been able to have an income, and that is why it was able to continue and [36:53 IA] income. A company like mine has no income until we produce a drug that we can sell in the market.
Sir Geoffrey Owen
And if you were in America, your investor would have more patience and would get you through this period when you have no income?
Yes. They would be pushing if you took the wrong investor, but for sure they understand that they would have to work on a phase III or a phase by phase basis, or you do a deal where you get what are called milestones, so they limit, de-risk the thing by saying yup, I’ll give you $20 million but it’s conditional on A, B, C, D and at each step you then get the next tranche of money that comes in. And that can happen also in this country, but it locks you in to a particular big pharma. What we want to do is to become a big pharma, and the last example of any consequence I think that could have done this is Celgene, because they bought the rights to Thalidomide, I think it was in the 1980s, for half a million pounds without the liability, which was the important thing, and they worked on myeloma and they just got away with it, even though they were American-based, because they were able to sell in Europe on compassionate care basis. One of the things you can do in Europe is if you have an early drug with promise, and this alludes a bit to Morris Saatchi’s bill that he was trying to pass through, is you could then sell, and Celgene survived that narrow, weak phase by being able to sell in a market, even though the drug wasn’t fully approved, it was very close to approval, and they were able to get an income, and income is the blood that keeps you going.
And this is where the government, if it was going to help me, should take a look and say, ‘Yup, we think this phase III study’s fantastic. It’s going to cost £20 million.’ Phase III study of medium size is monstrous amounts of money, and that brings us onto bureaucracy which I won’t go into. But the government, if it came in and said, ‘Yup, we like this company. We will not only invest in it, we’ll take shares in it,’ and then it will become a biotech. Because we haven’t got a hope of a snowflake of getting to become another GSK or a Wellcome or a Shire, because the amounts of money involved are very difficult to come by.
Is this the same concept of the valley of death, or is it slightly different?
Sir Geoffrey Owen
Sort of yes, yes.
Sir Geoffrey Owen
I think the two companies which need watching are the two companies which I’m sure you’re familiar with, namely Immunocore and Adaptimmune who are based in Milton Park, south of Oxford, and are based on science that’s come out of Oxford University. Now both of them are quite ambitious, maybe not to become a GSK, but I think they would like to be independent, probably not for ever but … and in one case, Adaptimmune, they have gone to NASDAQ and have raised quite a bit of money on NASDAQ. What happens? I think the share price has fallen somewhat, so as far as I’m aware, they are still some way from making profits, but through alliances, partnerships, they have kept going. Curiously enough they’ve not relied much on venture capital until very recently.
And the other one, Immunocore, is still private but raised a very big venture funding and again they have two or three big, important partnerships.
Having partnerships, perhaps three or four partnerships, is not incompatible with continuing to strive to grow and be independent, is it?
No, it’s not incompatible. [40:51 IA] Single pathway agencies are fine and techniques are fine but they will go wrong ultimately and the science is not as sound as it should be, but they’ve raised money, they’ve got plenty of money, but they have got an agent from which to work, and they’re not bringing an income. What [41:22] the middle-sized area where there’s a pharmacy agent, but as I say, [41:27 IA]
Chris Belk, Chairman of the Conservative Transport Group
I’ve got two hats, one a retired IT entrepreneur, and currently I’m Chairman of the Conservative Transport Group. Under the first heading, a company that I was joint founder of, in the nineties we had a very advanced piece of IT technology, we were having real trouble selling it to companies in the UK, our far-thinking VC, member of the board, came in one day and said, ‘UK companies are too risk-averse. The only way you’ll sell this is go to the States.’ And my wife and I and the number two IT guy upped sticks and went to just north of Boston. Within two months we’d interested one of the largest eyewear people, Lenscrafters, in taking source code licences, and the rest is history. We got bought eventually … didn’t make a lot of money but we got rid of all our debts and it’s turned out to be a major success worldwide.
If you go into Marks & Spencer’s or John Lewis all the cash registers use software based on the innovation that we had.
The second thing, the second heading is I’ve been very impressed with the Innovate UK’s Catapult Centre that does work in transport. I’m familiar in some detail with the work that they do in Milton Keynes and their target is to maintain something of a lead we have in autonomous vehicles, and if they’re left alone and allowed to stick to the remit I give them some real chance that we can get some major foothold in there. Shouldn’t we be doing something in the biotech area? Where’s the biotech equivalent catapult centre?
I see Chris Walker, head of the Knowledge Transfer Network, nodding his head, so why don’t we just ask him to comment on that?
Chris Walker, CEO of Knowledge Transfer Network
I’m CEO of Knowledge Transfer Network, which is a not for profit company that runs networking for Innovate UK. There are three catapults in health and medicine, but there’s one here in London which used to be called the Cell Therapies Catapult and it’s now the Cell and Gene Therapies Catapult, and it is very focussed on the scale-up and getting to market of regenerative medicine technologies and gene therapy technologies, and its big advantage is that it’s not just about the technologies of scale up, but it’s also working very closely with the regulators, and I think there is … I suppose the reverse question to the one about where do I get my £20 million to get through phase III clinical trials is why are they so expensive? Is there a way of getting through a regulatory process that is more effective, more quickly?
Just on that, the thing I’m impressed about with the Transport Catapult Centre is their understanding of the governmental, regulatory obstacles as well as the technology. If they’re allowed to continue to play the game and not have government interference beyond [45:26 IA]
So we need a bit of regulatory entrepreneurialism?
Sir Geoffrey Owen
Maybe just to comment on the first of your points, and again this is a biotech specific point, there’s a company called GW Pharma, which makes cannabis-based medicines. Their first treatment was for multiple sclerosis, and they went on the AIM in London, the junior stock market, in … I can’t remember exactly, early 2000s I think, and their share price didn’t do anything much, they were still not revenue producing. Then they got very good results from clinical trials, and then what’s happened in the last couple of years, they’ve got a second drug, which is a treatment for epilepsy, and they decided that because investors in the US were… first of all there were far more of them who knew about biotech, and there were far more of them that they could approach, what they did, instead of graduating from AIM to the main market of the London Stock Exchange, they went to NASDAQ. They got a secondary listing on NASDAQ, raised lots of money and the trials of this epilepsy drug seem to be going rather well and the share price has gone up and so on. So one of the reasons for this emigration to the US of a firm like that is simply the scale of the investment community that is knowledgeable about biotech. Of course there are other factors. And maybe that’s OK, all their research and development continues to be in the UK, they’re just listed in the States. I suppose the worry that people have is when people emigrate in that way, or when people list on NASDAQ, there’ll be a kind of shift in the centre of gravity towards the US and they will become less of a British company then.
I see Julian Warburton waving his hand, of Quantum DX, on this.
Julian Warburton, CFO of Quantum DX
Good evening. I think the key thing for this is scale in our country. We have bumped along, we have got funding through some grants from Innovate and TSB and a European grant. [48:11 IA] been a massive, massive benefit to us.
Sir Geoffrey Owen
The what has, sorry?
Sir Geoffrey Owen
Oh yes, yes.
[48:25 IA] this is unlocked capital that is outside of the venture capital [48:31] because that’s capital they [48:35 IA].
We’re about to become a medium-sized company over the next year but that’s through angel funding investments, and we’re now going through a big funding round, a multimillion pound funding round at the moment. None of our investors are British-based. They’re Swiss and US based. We are working with US companies on a collaborative basis, because of the scale. So we’re developing a diagnostic device which will be very cheap, rapid, accurate. There simply isn’t the number of companies in our space in this country who can take us to the medium and the large-sized company, which is a theme I think my colleague in front of me talked about earlier. So I don’t see how we can get away from the scale issue because when we set up a business in our dining room, it was ultimately the way to go was to partner a US-based business who has the scale, they have the foundries for our chips, they have the manufacturing and all that kind of stuff. So I think we are destined to be innovators but not benefit the country truly in terms of what we’ve got. Now that, I think, is purely a scale issue and nothing more. And I don’t see how it can change until we get the Illuminas based out here. Those kind of companies are the guys that are adding on, very aggressive in terms of their acquisition and all that, and the way they do their business. We don’t have that scale to do that. So I think your point is very interesting from very early in your conversation, in your presentation. Scale is key for us and we have nowhere to go in this country, and not really in Europe either.
Unless anyone’s desperate to say one more thing –
[50:32 IA] how I teach. We have a fantastic resource in the NHS. It’s wonderful, and we’re very grateful to the Minister for all the support that he’s given in terms of R&D and what have you, but one of the big resources we would love to have access to is the NHS. Now the previous government set up 16 centres of excellence for cancer and the concept was that they would be given free reign. Now for various reasons free reign doesn’t exist and my analogy is that of the racing car, that if we were to set up these 16 areas as independent states like Brands Hatch, Silverstone, the Nürburgring, whatever, and you’re allowed to do research within these units that was overt, that patency, transparency, that we could do crazy things, as you do on a racing track, you would be allowed to travel at 300 miles an hour on that racing track but there would be regulation for the roads. So I’m all for regulation, but keep the regulation for grandma, so that grandma at 80 can drive the Morris 1000 at 30 miles an hour and not get cut up by Hamilton or anybody else, but don’t put her onto the –
I think you need to throttle your metaphor before it kills you.
And that’s the point is that let’s have some innovation within medicine, using these centres of excellence, where you are allowed to do crazy things and take them back to the –
It’s a good point and I think we’ve given the Minister some food for thought here. So thank you Geoffrey for your remarks, and I’d now like to hand over to the Minister for Life Sciences, George Freeman, who I know is very actively thinking about innovation in this space.
And we’re expecting a 45 minute speech!
George Freeman, MP
Well Matt, thank you. Geoffrey, thank you. What a wonderful break from the hustings over the road. I’m sorry I’m not wearing a jacket. I was but I predicted floods, locusts, storms, and duly it came to pass.
Boy, if ever there was a time we needed a creative conversation about how science, the state and the City might work together it’s this week. This country has set itself on a path of profoundly ambitious (let me choose my words carefully), profoundly ambitious global growth and we have to now deliver it. We had to deliver it last week, but now we haven’t got a choice.
We have to use every lever we have at our disposal in the state to unleash the power of science and use our creative financing to create value, which is the key word for me.
I thought it was a book about my career, Geoffrey, actually, science, the state and the city, that’s all I’ve done in my life. If you haven’t read the book, please do, it is a really stunning and very timely tour de force. It raises all of the issues in the most lovely tone by a man who’s seen a few booms and busts, seen a few companies come and go and seen a models and seen a few governments, dare I say it. I genuinely think it’s a book for its time and a book that everybody should read.
I mentioned it sounds like a description of my career, Geoffrey. I spent the nineties as a thinner and hairier man, trying to start companies in the landscape that you describe, then ran one, we did sell it in the end, and then I became an evangelist of a new model of bioscience discovery. Let me just share with you briefly the lessons I learnt, because I was living through the thing that you’ve very eloquently described in the book. The sector I joined was basically a very nicely established funding ecosystem that had very little interest really in patients or in the ultimate value for the doctor at the end. I joined at the bottom, it was an early stage VC. We had a £40 million fund. When I arrived and said, ‘What do we do here?’ they said, ‘Oh we start companies.’ I said, ‘That sounds good. I come from a small company background where you make profits.’ They said, ‘No, no, no, we don’t make profits! We make things that somebody else will buy off us and then they’ll do something with it.’ And the sector grew, there were start-up VCs, then there were Series As, Series Bs, Series Cs, mezzanine financiers, and then pre-IPO financiers and then public markets, and there was a nice ecosystem, and then it all you had to do was pass it onto the next person and they’d pass it onto the next person. It was a sort of copycat model of the American boom from the eighties, and I was very struck that it had really been driven by big bang in the City, the liberation of capital in the late eighties, looking over the Atlantic and seeing stunning returns from the American biotechnology dawn, and arrived in a sector that was saying, ‘We could surely do that.’
I think one of the things I observed about the difference between American entrepreneurs was typically the American biotechnology entrepreneurs were medics, with two mobile phones, with a pizza business in the evening, they were real medical entrepreneurs. And in America of course the market is so much bigger, they get their innovation proven in the New York hospital or wherever it was, and if it works, in America you get ten hospitals to buy it, you’ve got a £30 million revenue stream. It’s quite easy to get into first purchase. Here in the UK, our health system is completely different and very few of our medics are really entrepreneurial. The sector I joined was driven by the City. It was capital coming out and saying, ‘I wonder if we could form companies?’ I joined a company that was a City-based business, who’d hired a bunch of scientists to see if we could persuade some academics to form a company that we would then take public. It’s a slightly different model. We have now seen, two or three generations later, you now get British scientists, British academics, British clinicians, with two phones and following Greg Winter’s example. So I think some of this is that we’ve seen now a cycle, a more sophisticated cycle. The first generation of entrepreneurs in Britain I observed would sell out at the moment where they could pay off all the liabilities, the car finance, the mortgage, the school fees, just get rid of all their liabilities, and then they’d play golf for a few months and get bored, and then they’d have another go, and this time they sell out when they’ve got enough money to buy everything they’ve ever thought they might need or want, second home … and then they play golf for nine months and get bored, and then they’re really exciting ‘cause they come back and say, ‘Now I can afford to fail, and I’m going to start a company and it’s going to be a billion pound company and we’re going to go global.’ And that takes a bit of cultural change. We’re not Americans. But then I look at someone like Herman Hauser, of course a German, in Cambridge, he’s the only man in the country who’s started 11 companies now worth over $1 billion, and Cambridge is a cluster because there are people who’ve done it over and over again, reference angels. Some of this just takes a bit of time and I think we are maturing as a sector. The sector I worked in and cut my teeth in was pretty green. We were playing copycat American venture capital and we didn’t have very many successes and frankly the sector oversold to the City. The institutional investors, they were there, they were really good for us, in the nineties they stepped in, they funded companies like British biotech, which I was an investor in, a very junior member of the team who made the investment, I wasn’t on the board, and there were a lot of easy PowerPoint slides promising 80% IORs and the market pulled off in the late nineties partly because the market collapsed, partly because they’d been sold a lot of gold that really … dreams that didn’t come true. There was a gold rush, people made money selling shovels. You could make more money running a fund than making a company that actually developed medical innovation and it all got a bit out of control.
I think now you’re seeing a much tougher, battle-tested, recycled generation bringing real value. I’ve been at various conferences recently. When you see the type of British companies now, they are really good companies with strong pipelines, proper products with that word value, they’re going to save money in hospitals, and I’m much more optimistic about them than anything I ever created back in the nineties.
I’m looking at the words ‘Policy Exchange’ as a politician, thinking what are the policy implications from this, and just three thoughts for those of you who are staying for dinner to kick around and those of you who aren’t to take off and mull over. The first is that this sector is being completely transformed, almost quicker than it can adapt, driven by a deep failure of the big pharma traditional business model, actually 80% of big pharma products fail, if you look at the revolution in genomics and genetics the last 30 years, we all predicted it would lead to a massive transformational breakthrough in pharma productivity; it’s actually gone down. They’re in real trouble. They bought each other out, they consolidated … actually that’s not working either. Now they’re breaking themselves back down again. This sector is not a sustainable, viable, funding model for ever. It’s changing really fast and good people in it, [59:37], and are changing it. Genomics and informatics are totally changing the way drugs are discovered. The old model was invent something, test it in a test tube, test it in an animal, test in a patient who’s well, test it in a patient who’s ill, take it into thousands, see if it works, and then eventually come with a one-size-fits-all that everybody could take. Totally changed. The sector can’t afford it, it takes too long, we can’t afford to buy it, they can’t afford to recoup their sunk costs after 15 years, takes about 15 years and $2 billion now to make a drug, you only get 5 years left on the patent life, it just doesn’t work. You can’t recoup that cost, so the model is now becoming why don’t we start with the patients? Start not with mice, start with patients with real disease, start with their genetics and their data, design a drug for a real patient cohort. Most of the drugs that have failed, if you look at the data they’re actually very successful in a small cohort of people. The sector spends billions taking the bell curve of impact, trying to push the tail here where it has no impact, and squeeze the tail here where it kills someone, and bring it into a drug that works for maximum impact in maximum people. You basically reduce the dose. It’s not a very efficient way of targeting the right cure at the right people, and inside that bell curve you tend to find the drug is perfect for a group of people, and guess what? Now with genomics and informatics we can identify them at the beginning and get to them much earlier.
Payer affordability is the other issue. The industry has merrily produced expensive drugs, the Americans have been able to afford to buy it, we’ve increasingly struggled. Europe’s increasingly struggled, the NHS increasingly, increasingly struggled. We sort of held the line as a sector because our science is so good and our research is so good, but the roar that carried in my ears when I came to office was, ‘Minister, great place to do research, terrible place to get anything bought. And if we can’t buy it here and get it into use here, commercially validated, we might as well go to America.’
And the fourth issue is convergence, the whole sector got very used to these convenient silos, phase I, phase II, phase II, research, over the wall into development – literally over the wall, in pharma they’re just a different tribe. People say, ‘You work in Glaxo? Are you R or D?’ They’re totally different people and the D people look at the R people and go, ‘Oh god, what have they given us now? You want me to makethat into a drug?’ And there’s a cultural big pharma silo, and that’s completely changing. Now they tend to do multidisciplinary teams, start with a patient and a clinician, start with the pre-clin, and that … AZ have really embraced that model, GSK are doing it in a different way, so the sector is really changing and in that convergence you’re seeing digital pills, you’re seeing site-specific drugs, devices that can now measure drug impact in the body; amazing technologies changing what’s possible. The policy question that drives me is really we shouldn’t pick winners, keep investing in deep science, allow the great deep scientists like Greg Winter, I think our great scientific institutions should earn the right to do crazy stuff. You should earn the right. When you become excellent, I think we should give less and less control over the money. If a lab has won really international excellence awards I’d just get off their back and let them. To begin with you have to prove you’re good enough, you have to win the grants, but deep science, we’ve put in place a landscape that rewards entrepreneurship, the catalyst, the EIS, the patent box, the really big one that I focus on is the NHS, because if the NHS basically becomes hostile to innovation or too slow or rations by delay, we’ll simply be a science hub and then the stuff will go overseas and they won’t be financed by the City, to your point. So my main focus is to get the NHS pumping as a second cylinder, releasing the genetics, the data, the pinnacle infrastructure, and pulling through into use more quickly. The model, I’ve been very clear with industry, is we are never going to be a high price payer. I know that, you know that, you know that I know that you know that I know that, I say to industry, so I’ve got to have another compelling proposition, and here’s what it is. In an age of personalised, gnomically profiled, informatically underpinned drug discovery, where better than the NHS to do that work? Now that is true, but where worse at the moment to get it pulled through into practice? And the Accelerated Access Review is about a completely different model where the NHS says to industry, ‘We’re not going to pay you on day one. We’ll pull your drug in. We’ll test it in our patients, in our £1 billion a year clinical National Institute for Health Research, we’ll get the data, and then we’ll do discounted pricing in return for acceleration. Instead of being the slowest place to get into patients at retail price, we’ll be the first at a confidential shared price. And guess what? Hep C is a brilliant example. Amazing drugs, the Hep C drugs. Big price ‘cause it cures the disease, it costs a lot of money, hundreds of thousands, and then it has a downstream saving to the health system. That’s really difficult because we don’t have a way in procurement of valuing the downstream saving. We need to find innovative ways to say, ‘Well if that’s the cost of the disease to our society, we’ll pay you every year. We’ll insure the cost internally.’ It turns out, because we were a slow adopter of Hep C, the country that did adopt it early discovered that in fact a big percentage of patients don’t need the full course. I’d like to be the country that worked that out. I’d like to be the country that did the genomics and the data and quietly said to Gilead, ‘Guess what? Turns out x% of patients don’t need 12 weeks, and we’ll be the partner with you and we’ll get a discount in return.’ I want us to become the partner with these companies and use those clinical assets.
Last point is this. Boy, with Brexit, we have got to harness our City and our broader biosciences, not just in biomedicine, which is the key one, but also in agritech, the broader appliance of bioscience. I think we’re on an age of incredible biology, in food, in medicine, in energy, the world’s getting hungry and the world needs these sciences. You’re so right, we basically still haven’t properly plugged our City into our bioscience base for global solutions. And I think we could be the generation, in thirty years, the new Victorians. People say, ‘Dad, how did you do it? How did you get out post-Brexit and really make a success?’ And we’d say, ‘Well, we fundamentally unleashed the power of our City, which had been making derivatives, and we plugged them into our science base and we were the place that made the global science solutions that meant bioscience allowed us to feed fuel and heal an exploding world population.’ I didn’t choose Brexit but I’m determined to make a success of it.
Thank you so much for your book and for raising all these issues. I think it couldn’t be more timely, as we, this week, begin to work out how we are going to make a success of it.
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