London Mayor Boris Johnson has proposed a £10bn ‘megafund’ to inject capital into the city’s life sciences sector and attract new drug developers. We find out more.
London has long been renowned as a hub for life sciences innovation. With a concentration of world-leading universities – not to mention proximity to Oxford and Cambridge – its research potential is not in doubt. Five of the UK’s seven Academic Health Sciences Centres are based within the London-Oxford-Cambridge ‘golden triangle’, and more than 150 Nobel prizewinning scientists are associated with its universities.
It also presents an attractive base for industry. Today, two of the world’s largest pharma companies are headquartered here: the biologics giant AstraZeneca in central London, and its multinational rival GlaxoSmithKline in Brentford. And while London conspicuously lacks a tier of mid-sized life sciences companies (the UK’s next biggest pharma company, Shire, is based in Ireland) the city has shown itself to be more than capable of supporting major industry players.
All this said, there is a growing consensus that London – and South East England more generally – may not be realising its full potential. Despite significant growth underway at GSK and AstraZeneca, the region’s pharma sector as a whole is facing some acute funding challenges. In order to translate research into reality, and turn scientific endeavor into lifesaving drugs, the industry sorely needs more capital investment than it is able to access at present.
“The investment challenges we face in the UK are well known – when it comes to science and innovation we can easily compete with clusters like Boston, but when it comes to unlocking the level of finance needed to commercialise drug development, we fall behind,” explains Eliot Forster, executive chair at MedCity.
“It’s a key reason why we are missing that crucial layer of mid-sized companies. What we need is more large pools of patient capital that will enable a company with a promising candidate to take it through all the stages to get to market.”
Chasing the potential
MedCity was established last April by Boris Johnson, the Mayor of London, with a view to redressing this situation. According to Forster, there was a strong sense the city was ‘missing a trick’ in converting its scientific and medical capabilities into economic growth.
“London and the Greater South East is one of the world’s leading life sciences centres when it comes to research and development, we have no shortage of appetite for commercialisation and the UK is a great place to do business. However the sector has some barriers to overcome if we are to derive the sort of economic benefit from life sciences that it has the potential to provide,” he explains.
The £4m MedCity initiative has been modelled on London’s Tech City, which was launched in 2010 to support the cluster of tech start-ups around Shoreditch. This earlier scheme was credited as attracting technological giants like Google to the region, while allowing smaller companies to thrive.
Like its predecessor, MedCity is intended to reduce the city’s economic dependence on financial services. It aims to position the region as an interconnected hub of drug development – seeing new medicines right the way through from R&D to commercialisation – and provide a kind of ‘shop front’ for the industry, making it easier to connect start-ups with investors.
Since the initiative got underway, a central question has been hanging in the balance: just how can UK companies go about unlocking the kind of long-term, large-scale funding they need to succeed?
The Mayor’s Megafund
While nobody knows for sure at this stage, MedCity may be homing in on some answers. In June, the Mayor’s Office and MedCity held a roundtable at City Hall, which brought in experts not just from industry, but from finance and research too.
“The event focused on positioning London as a test bed for innovative new funding models for drug discovery and development,” says Forster. “There was real appetite from participants to engage in further work to scope out a potential fund.”
One of the proposals under consideration was the creation of ‘megafunds’, which would be valued at up to £10bn. Established through a mix of debt and equity finance, these megafunds would be used to support a number of different drug development projects.
This, in turn, would lower the risk for investors. If an investor chooses to back a single project, there is a high chance their money will be squandered and the drug will never come to market. But through backing a whole portfolio of projects, they are likely to see some successes, which would make up for the failure of the rest.
In simple terms, the megafunds would stop them putting all their eggs in one basket, and – to extend the metaphor – would improve the odds that some of those eggs will hatch.
Participants also considered making use of the InnovFin initiative, a programme run jointly by the European Commission and European Investment Bank. This initiative, which was established to help life sciences companies attract investment, is expected to provide over £24bn of financing across Europe over the next five years, and seeks also to reduce the risk for other investors.
Tackling the challenges
While these ideas sound promising, it is safe to say that implementation will not be a simple task. The drug development process has no straightforward analogue in other industries, meaning investors can’t simply transpose funding models that have worked elsewhere. It will be necessary to address the challenges specific to life sciences, and adapt their chosen funding strategy to suit the sector’s scale and complexity.
Similarly, question marks remain over exactly where the funding would come from, particularly should Britain vote to leave the EU. Forster feels that the pharmaceutical industry could stand to gain from stronger, not weaker, ties with Europe.
“The life sciences market is an international one for both talent and investment,” he says. “My view is that immigration rules should support the flow of talent and that the UK needs to be open to the world – London’s reputation as a place where the world comes to do business is hugely attractive. Our financial, scientific and regulatory strengths would continue to be attractive regardless of our position in Europe, but we certainly benefit enormously from the EU’s strong support for research and innovation.”
For now, MedCity is working hard to develop the resources and infrastructure necessary to encourage this kind of funding.
“We are currently at a very early stage,” says Forster. “The Mayor’s team will be working with key partners including the European Investment Bank, to further scope out options for a potential fund. This work is likely to include setting up an advisory group over the coming months, to help us take the work forward.”
While the specifics are still open to question, the central goal is not – and that is to tie London’s world-class science with the necessary venture capital. Should it succeed in marrying talent with investment, the city stands to prove itself anew as an important player on the world stage.
This article appears in the October 2015 edition of Pharma Technology Focus
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