Should government step in to save UK biotech?

Die-hard capitalists seem to be a dying breed since the financial crisis hit. With everyone from automobile companies to major financial institutions putting their hands out for some form of government support, it isn’t surprising that the private equity industry is getting into the act. 

In the U.K., the government late last week announced plans to set-up a £1 billion fund to help technology startups. Details of that still have to be worked out. Separately, however, a group of private equity officials led by Sir Chris Evans of the Excalibur Group has asked for help for the UK’s struggling biotech industry.  Sir Chris and 50 other industry leaders have submitted a set of recommendations to the government, which includes a request for £500 million for two biotech funds, one to help biotech companies stay liquid, another to help them grow to a more substantial size via acquisitions. They argue that failure to support the cash-strapped industry could result in it losing its second-ranked spot (behind the US) in the global biotech industry. 

US biotechs have also followed suit. The US Biotechnology Industry Association has also asked the US government for financial help in the form of a tax credit for small biotech companies.  

Not too suprisingly, several UK biotech officials I spoke with this week would welcome more government support.  “It is looking like many UK biotechs will go to the wall next year,” says Simon Brocklehurst, general partner with Cambridge-based Ash Biotech, which develops automation systems for biotechnology and pharmaceutical companies, in the areas of digital imaging, high-content and high throughput screening and antibody drug discovery. ”Even the UK’s most promising biotechs won’t be able to raise the funds they need to really innovate.” he notes, conceding however that some of these are low-quality companies that should be allowed to fail.  

Jon Rees, CEO of Oxfordshire Bioscience Network, a regional non-profit business network for biotechs in the region in and around Oxford, told me that VC-backed companies in his region are generally better financed than in some other parts of the UK.  Spin-outs continue to emerge and, if they manage themselves conservatively, have a good chance to gain further funding in two to three years, he believes.

But Rees sees a strong need for immediate government support directed in particular towards public-listed companies. ”It has been clear since mid-2007 that there is a problem with smaller biotechs that went public in a phase when the markets were promoted as a place for them to raise money. Raising follow-on rounds has been and continues to be very problematic.”  Rees sees a need for a “roll-up” fund to help buy up these publicly-traded biotechs. He declined to name any specific examples of companies that are struggling. 

If the government steps in as requested, it would be taking on a much stronger role in the UK private equity industry than in the past.  It will be interesting to see whether VCs and bankers still welcome that when the good times roll again.