LONDON — The U.K. Medical Research Council (MRC) has launched a £30 million seed fund to finance start-ups based on its in-house research program.
The fund, called the U.K. Medical Ventures Fund, is sponsored by Hoare Govett Corporate Finance, and investors include international pharmaceutical companies with bases in the U.K., and U.K. financial institutions.
The fund is the idea of David Owen, director of industrial collaboration and licensing at the government-funded MRC. He told BioWorld International, "I am very pleased to see the launch of the fund; it has been a long haul. I am very happy with the amount raised — we set a minimum of £30 million for the first closing, which has been achieved.
"We expect to top it up in the next couple of months, with a ceiling of £40 million for the second closing. At that point the names of all the investors will be a matter of record."
One investor whose name has been made public is 3i plc, which has made the largest single commitment, of £11 million.
The fund will be managed by a new company, U.K. Medical Ventures Management Ltd., which has attracted Stephen Reeders to be chief executive. He returns to the U.K. from the U.S. investment firm Saunders, Karp and Megrue, in New York. Reeders was formerly at Yale University and the Howard Hughes Medical Institute.
Owen said, "We are very pleased to have attracted Dr. Reeders to run U.K. Medical Ventures Management. He is well known in both the financial and scientific community and I believe he will help pull people into the second round."
The £30 million raised so far is expected to fund the start-up of between 10 and 12 companies, though Owen said, "We have not got that written in stone. We have a strong board that will make rational decisions downstream."
The fund expects to put money into subsequent rounds to protect its position. "We will focus on start-ups but we won't want to lose the value of our investments." He added the fund will spread its money "so we have got a portfolio approach."
Initial Funding For Three Firms Targeted
A number of potential companies are being looked at, but Owen said he did not know when the fund would make its first investment. "I hope to see two to three companies which are waiting for funding up and running as soon as possible."
Owen has been behind the formation of other companies based on MRC technology, including Prolifix Ltd., of London, which works on the cell cycle; Therexsys Ltd., of Keele, a gene therapy company; and Ribotargets Ltd., of Cambridge, which specializes in RNA. He said that in general there is a shortage of finance for seed and early-stage companies in the U.K. because investors find it difficult to evaluate the commercial potential of biomedical research. The fund will be supported by a scientific advisory board in selecting the technologies with the greatest potential.
The fund has an agreement with the MRC under which it will get privileged access to research and a six-month exclusivity period to decide if it wants to invest in any MRC technology. The MRC has an annual research budget of around £300 million, of which about half goes to university and medical school research, and the rest to fund the council's in-house programs.
"The fund has a period of exclusivity to do a deal, but it has an obligation to spend not less than 75 percent of its money on technology from the MRC's laboratories," said Owen. He acknowledged this could detract other investors from looking at MRC research, because they will feel it already has been picked over. However, he argued that it will have the opposite effect.
"U.K. Medical Ventures Fund can't do everything," Owen said. "Once other investors see the potential of MRC research, they will be encouraged to look at our technology."
The formation of the fund also has made a difference to scientists who work in the MRC's labs, according to Owen. "This has changed their perception. Before, the prospect of starting a company was an interesting prospect but unlikely to happen. Now, they know there is money. It is creating an environment where people want to do it."
Another problem faced by earlier MRC start-ups was the shortage of good managers. Owen said getting people is an issue, but he believes the fund will help with this problem, too. "To form a company you need a juxtaposition of technology, management and money. With the fund we will be able to align the technology and the money, acting as a magnet for good people."