The biotechnology sector in Britain expects to raise #878million (around US$1.3 billion) by 1995-1996 -- almost twiceas much as 1992-1993 -- according to a survey releasedWednesday by accountants Arthur Andersen and theBioIndustry Association.
The report, "U.K. Biotech '94 -- The Way Ahead," reflects theanswers of 68 companies that responded to a 57-pagequestionnaire (166 biotechnology companies were polled), aswell as interviews with senior managers in nine companies.The 68 respondents account for an estimated 57 percent of thesector's R&D spending and 44 percent of its employees. Thefigures in the report include estimates of the likelycontribution of the companies that did not complete the survey.
Over the next three years, existing companies in thebiotechnology industry will require about $1.65 billion in newequity funding, and new companies may add to that demand,the report points out.
Biopharmaceutical companies will demand the most cash,expecting to raise about $1.17 billion over the next three years.The survey respondents said they expect to raise much of thismoney through public offerings. On the other hand, companiesactive in agricultural biotechnology expect to raise $72 million,mostly from private sources.
The report is the first detailed study of the biotechnologybusiness in the United Kingdom. Louis de Gama, executivedirector of the BioIndustry Association, said lack a of reliableinformation was the impetus for the study. "I was constantlybeing asked by the government for statistics," he told BioWorld.
Of the 166 companies polled, suppliers accounted for thelargest proportion, with 66 companies. There were 41companies in the diagnostics sector, 37 biopharmaceuticalcompanies and 22 "agbio" companies.
The survey asked companies about the ease with which theyraised money. According to the report, "they believe theinvestment community overall has a negative attitude tobiotechnology." The report highlights two reasons for this.Investors, the companies believe, "perceive that themanagement of biotechnology companies lacks commercialexpertise." Investors have also been wary because they havenot had "the necessary exit routes to encourage initialinvestment."
While respondents still expect difficulties raising money, thereare signs of hope. In particular, the new listing rules on theLondon Stock Exchange will enable companies to seek a listingwhile they have products in development. The new rules, saidVernon Spencer of Arthur Andersen's Biotechnology Group,"will significantly improve the ability of young biotechnologycompanies to raise their first equity financing, particularly ifexiting biotechnology investors reinvest some of theirrealization proceeds in further early-stage companies."
Spencer believes companies can now bridge what he describesas the "realization gap." He pointed out that "in the past, earlyinvestors lacked an exit route for realizing biotechnologyinvestments within the four-to-six-year time frame on whichmany of them operate. There was a realization gap, whichmeant they had to wait an extra five years before thecompany's first product sales made it eligible for a stockmarket listing."
The growth of biotechnology revenues may also help bring ininvestors. Over the next three years, the industry expects itsturnover to rise to $1.32 billion from $705 million in 1992-1993. "This alone is impressive," said David Kirk, head ofArthur Andersen's Technology Group, "but the strength of thesector's product development pipeline indicates even fastergrowth could follow, particularly when recombinant drugs andplants currently progressing through clinical and field trialsreach the market in 1996 and beyond."
The pharmaceuticals sector alone, with a turnover of $290million in 1992-1993, forecasts a 64 percent increase inrevenues, reaching $478 million in 1995-1996. Over thatperiod the sector expects the number of products indevelopment to rise from 23 to 31. By then, four productsshould be on the market, compared with none in 1992-1993.
As they grow, biotechnology companies in Britain expect toadopt various strategies; nearly half -- 43 percent -- aim tobecome fully integrated. In contrast, 17 percent expect toresearch, develop and manufacture products for partners tomarket. For a further 17 percent, the strategy is to research,develop and market their own products with a partnermanufacturing them.
Of the four segments covered in the survey, biopharmaceuticalcompanies are the most inclined to concentrate, as the reportputs it, "on front-end strategies. In other words, those whichfocus on a company's core research and development skills."
The survey found that companies expect to see considerableactivity on the merger front in the coming decade, particularlyinvolving pharmaceuticals companies. "Over 70 percent of therespondents believe mergers and acquisitions will be a keyfactor of the U.K. sector over the next decade," says the report.A similar proportion of the respondents expect mergersbetween biotechnology companies.
Companies that avoid being taken over expect strategicalliances to play a significant role in helping them achieve theirstrategic goals. "U.K. companies are entering into strategicalliances with leading companies worldwide as part of theirstrategy for growth," said Da Gama. "The number and caliber ofthese corporate partners clearly demonstrates the quality ofthe U.K. sector's research capability and international standing."
The report suggests that the number of strategic alliances coulddouble over the next three years. Biopharmaceuticalcompanies, for example, expect to have an average of 3.5alliances per company by 1995, up from 2.1 in 1992.
Alliances tend to be initiated by the U.K. biotechnologycompany concerned rather than the other party. "The mostimportant drivers for the biotechnology companies," says thereport, "are accessing sources of technology and assessingmarketing and distribution networks in a desire to acceleratethe product to market cycle."
Over the next three years, biopharmaceutical companies andsuppliers in the biotechnology business expect the emphasis onalliances to be within Europe. In the agbio and diagnosticssectors, companies anticipate a greater emphasis on U.S.alliances. In all sectors, companies expect to form morealliances with Japanese companies.
Companies also expect their R&D budgets to continue toincrease rapidly. When it comes to R&D spending,biopharmaceutical companies are responsible for 70 percent, or$137 million, of the total $195 million spent on R&D in biotech.The companies expect the R&D budgets to increase to $300million by 1995/96, with biopharmaceutical firms spending$220 million.
The respondents also expressed concerns about the time takento put products through trials and obtain product approval inthe U.K. or the U.S. They believe delays eat into a product'svaluable patent life.
There are also concerns about the regulatory regime in Europe.As the report puts it, "Industrialists believe Europeconcentrates too much on monitoring research anddevelopment work and in so doing creates an administrativeburden that threatens the competitiveness of the U.K. sectorcompared to the U.S. and Japan."
U.K. companies also complain about the different regimes thatgovern patent protection in Europe, Japan and the U.S. The U.S.is thought to grant patents with much broader claims thanwould be allowed elsewhere. Even in Europe, companiescomplain about differences between the European Patent Officeand national laws within the European Union.
The report concludes with signs of optimism, pointing to anumber of recent events that could have a positive impact onthe biotech sector in the U.K. "The U.K. has an excellentreputation for biotechnological innovation. That is a positionthat neither the U.K. nor the European Community can afford tosquander."
Copies of the report are available for US$450 each from MMC,(011) +44 (0) 420 22633, or via fax, (011) +44 (0) 420 22642.
-- Michael Kenward Special to BioWorld
(c) 1997 American Health Consultants. All rights reserved.