LONDON - Three U.K. start-up companies have raised a total of £10.5 million in their first round funding from the dedicated biosciences venture capital company the Merlin Fund.

The three, Microscience Ltd., Eurogene Ltd. and ReNeuron Ltd., were established in 1997 through collaborations between academia and Merlin Ventures Ltd. Both the Merlin Fund and Merlin Ventures were founded by the biotech entrepreneurs Chris Evans, founder of Chiroscience plc, Peter Keen, former finance director of Chiroscience, and John Morris.

Mark Docherty, director of Merlin Ventures, told BioWorld International, “It was not a foregone conclusion that the fund would invest in these companies. The fund operates independently of Merlin Ventures, and has its own scientific advisory board under Trevor Jones.“ Jones also is director general of the Association of the British Pharmaceutical Industry.

The three companies were set up with about £250,000 each from Merlin Ventures. “More importantly, we put in the time and effort to set up the business structure and get the strategy right. We work with the cofounding academics to produce a business plan that is fundable,“ said Docherty.

Merlin Ventures talks to the Merlin Fund about its activities and the fund gets first refusal when a company is ready for its first round funding.

ReNeuron, established in June 1997, has won £5 million. The company is built around research at the Institute of Psychiatry - part of King's College, in London - into repair and regeneration of neural cells. This will be applied in a range of neurological and psychiatric disorders, including acute conditions such as stroke; chronic conditions such as Alzheimer's and Parkinson's diseases; and Huntington's disease.

Eurogene, set up in June 1997, has £ 3 million funding to advance its program of gene therapy for the treatment of cardiovascular disease, specifically atherosclerosis and narrowing of the arteries. The company's initial product aims to improve the outcome of coronary and peripheral artery bypass surgery. Eurogene is based around research carried out at University College, in London, and at the AI Virtanen Institute of the University of Kuopio, in Finland.

Microscience, which will receive £2.5 million, was founded in May 1997 around technology developed at the Royal Postgraduate Medical School, part of Imperial College, in London. The company specializes in antibacterial vaccines and drugs.

Microscience has rights to a broad platform technology, Signature Tagged Mutagenesis (STM), a technique for the rapid identification of new targets. Drugs developed using STM may be able to treat infectious diseases that have become resistant to current antibiotics. One of the initial targets is Group B Streptococcus, the most common lethal infection in newborn babies.

Docherty said the level of funding for the three companies was decided by asking, “What money does each need to get to its next significant milestone.“ The companies have different milestones, but the first-round funds are expected to last about two years in each case.

Docherty “expects the fund to follow its money“ when the companies are ready for further funding. Other investors also will be invited to take part at this stage.

With these three investments and an earlier investment of £2.5 million in Cyclacel Ltd., a cancer therapeutics company, the Merlin Fund has invested £13 million since it was set up in February 1997. The fund has commitments of £39 million, and said it will disclose further investments in the next few months.

Government Fund Also Targets U.K. Research

Merlin Ventures was set up to encourage the commercialization of publicly funded bioscience research in U.K. universities.

Last week, the U.K. government reported the formation of a £50 million venture capital fund with the same objective of helping universities exploit their research. Describing the University Challenge Fund (UCF), the chancellor of the exchequer, Gordon Brown, said, “For too long the great scientific advances of British universities have gone on to become the manufacturing successes of rival countries.“

While the UCF will cover projects in all areas of high technology, £20 million comes from the London-based research charity the Wellcome Trust and can be expected to go into biotechnology.

Although details of how the UCF will operate have yet to be announced, Docherty said, “We welcome it. There is a lot of excellent science in the U.K., and certainly more than we can fund. This helps create the right atmosphere, where academics are thinking about the commercial potential of their research.“

At the same time, Brown reported on measures to encourage the development of the U.K.'s venture capital industry, including a 50 percent rise in tax relief on venture capital investments.

The government also published a discussion document aimed at encouraging greater R&D investment by British companies. The ideas it is floating range from schemes to improve start-up funding to introducing an R&D tax credit. *