LONDON ¿ Merlin Ventures is setting up what it claims will be the largest biosciences fund in Europe, raising up to #100 million (US$162 million) to help plug the equity gap in U.K. and European biotechnology. According to entre preneur Chris Evans, co-founder of Merlin, there has been a rapid expansion in funding for start-ups, which now needs to be matched by funding for companies between two and three years old.
¿In recent years, there have been a number of government and private-sector initiatives to encourage the formation and funding of start-up companies,¿ Evans told BioWorld International. ¿This needs to be maintained, to ensure that the U.K. continues to feed the pipeline of emerging life-science and technology businesses and maintains its position in the industry. However, an equity gap is now emerging in the funding process, as U.K.-based start-up companies of two to three years ago grow into mid-life companies requiring financing of between #2 million and #10 million.¿ He estimated existing U.K. companies will require a #1.5 billion investment over the next three years.
The new fund, called the Merlin Healthcare Fund, ¿is well on the way to raising #100 million,¿ Evans said.
According to Evans, most of the factors required to encourage start-ups are in place in the U.K. He is complimentary about government initiatives to foster the development of new high-technology companies, such as research and development credits, the tapering of the capital-gains tax, and biotechnology mentoring and incubation schemes. He also applauds moves by the publicly funded Medical Research Council and the Wellcome Trust, the largest biosciences research charity, to form companies around the research they fund.
¿The government and others have done a lot to encourage start-ups, and have fulfilled the objective of increasing technology transfer,¿ Evans said. ¿Money is just one side of it, and there has been a package of measures.¿
Merlin Ventures, established in 1996 to fund start-ups, has set up seven companies to date.
The prospects for mid-life companies looking for funds have been damaged by the poor performance of the U.K.-quoted companies over the past year, and the low number of initial public offerings (IPOs). ¿The risk-reward ratio has changed and as a result the institutions have moved away,¿ Evans said. ¿When the market was buoyant two or three years ago, you could get a venture capitalist and five or six institutions to back a company at this stage. Now, the institutions are only interested if a company is close to [an IPO], or already quoted.¿
About 50 new companies have been created in the U.K. in the past two years. ¿In other words, the market has gone cool on investing in biotechnology just at the point when there are more companies that need money,¿ Evans said.
Merlin Healthcare will be launched in the third quarter of 1999, and expects to make its first investment before the year¿s end. Evans said that, although institutions will not invest directly, they are prepared to do so through a specialist fund like Merlin.
There are already companies lined up for funding. ¿We will only deal with the very best, looking at the management teams and adding in other projects,¿ Evans said. ¿We will not say, This business plan is good; we¿ll buy 30 per-cent,¿ but provide total support.¿
Evans said Merlin would also be seeking to encourage consolidation.
¿I am already talking to companies about why they must come together,¿ he said. ¿The sector needs to be engineered.¿ There are now 1,400 not-quoted biotechnology companies in Europe. ¿There is an unbelievable array, and they can¿t all be financed,¿ Evans said. ¿We need to put them together into entities that can attract #10 million to #15 million.¿
The aim is to create flagship companies. ¿By the time we take them to the stock market they will have several compounds in Phase III, and a pipeline of products coming along behind,¿ Evans said.
¿The market has changed and the sector must change,¿ he added. ¿You can no longer take companies with a few early-stage projects to the market. Over the next five to 10 years the quality ethic will come through, and the institutions will come back into it.¿