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It’s funny how your mind works sometimes. I remember when then Arsenal footballer Thierry Henry ran those ‘va va voom...’ car ads, and for weeks I couldn’t stop myself spotting Renault Clios, although it was probably as much to do with manic drummer Animal, from The Muppet Show. So when a reader highlighted the biotech industry recently, it too struck a cord, and low and behold, just last week John Brown, a genuine biotech heavyweight and former chief executive of drug developer Acambis, turns up as the new chairman of BTG, one of the UK’s oldest commercialisation companies.
This got me pondering the seemingly fallen star that is the biotech world, which just a few years ago was supposed to blossom into the next big investment craze.
Remember Dolly the sheep? The world’s first cloned mammal was heralded as a scientific breakthrough back in 1997, while establishing the UK as a thriving biotechnology centre. Excitement in the late 1990s and early part of the new millennium saw money pour into the sector, from professional and private investors alike. Even retail investor guru Jim Slater dabbled briefly in biotech, although whether he ended up making any money out of it, only he knows.
What is widely understood, however, is that the industry has gone down with a rather nasty case of forgotten sector syndrome over recent years. While Dolly is stuffed and on display at the Royal Museum in Edinburgh, her creator, PPL Therapeutics, collapsed and was eventually sold to the Americans for barely £6 million, a fraction of the £500 million it was worth in its heyday.
This serves as a stark reminder to investors of just how difficult it is to convert scientific breakthroughs into viable businesses.
On the bookshelf next to my desk sits a book on the topic, The Biotech Investor’s Bible, a 300-plus-page volume by George Wolff, a journalist who has covered the world of disease, drugs and investment for many years.
‘Investing in biotechnology is a challenge, not a gamble,’ Wolff insists. ‘It requires research and commitment on the part of biotech investors, who face two key hurdles; recognising great companies in a complex, poorly understood business, and committing hard-earned capital with long-term goals in mind.’ Typically introductory stuff for an investment book so far. But Wolff gets bolder. ‘For investors who take the time to learn about the potential and the pitfalls of biotechnology investing, this is a golden moment,’ he assures readers. That was in 2001, just about the peak for the sector in recent times, as the chart shows.
Involvement in the sector takes a special kind of dedication from investors. Hugely capital intensive, much of the money invested will be spent long before anyone can really gauge the sort of returns investors might expect, if any, while the exacting requirements of regulators (albeit, rightly so) means even early successes usually only see the cap handed round investors once again for fresh funds to throw at even tougher regulatory obstacles, often a painfully dilutive experience. Getting a product past Phase I, Phase II and finally Phase III trials is likely to take years. The typical way round this for small biotech firms is to effectively out-license the rights to a development drug to a pharma giant, one with deep enough pockets to go the distance, but even this comes with no guarantee of success.
I’ve always thought there were parallels with the oil & gas exploration industry, in investment terms anyway. Both require large doses of cash and optimism from investors right from the off. Both can deliver newsflow that can carry investors to the very brink of greatness, only for all hopes to be dashed at the very last minute by disaster. But both can, and occasionally do, hand out some of the most spectacular profits windfalls the stock market has to offer. It is this which ensures both have diehard fans come hell or high water.
And possibly, just possibly, that high water is beginning to subside. Recently analysts at US investment bank Goldman Sachs were talking up possible gains from rising R&D spending across the sector, thanks to expiring patents on many big-selling drugs, flagging product pipelines and intensifying competition. This promises a shift towards increasingly outsourced clinical trials, Goldman says, which promises to throw open the doors of opportunity for small specialists in ways we haven’t seen in ages.
So while there have been plenty of false dawns – the 2005 £680 million-odd sale of UK starlet Cambridge Antibody Technology to AstraZeneca was supposed to herald a new golden age for the biotech sector, but failed miserably – slithers of hope remain for a resurgence in the sector. Perhaps George Wolff wasn’t wrong after all, just several years ahead of his time.