PARTNER: Sweetening the Pill - BFAS & SEHTA
First some figures. The UK has one of the most successful health technology industries in the world, and the South East is arguably the most important region within this. In 2004 the UK biotechnology sector comprised 350 companies employing almost 19,000 people, was developing or waiting on approval for 195 new drugs, and generated over €3.76bn in revenues.
Unsurprising then, that biotechnology is considered to be important, if not vital to the well-being of UK plc. What might be surprising is that the 2004 figures represent a fall from the previous year. The number of UK biotech companies fell from 383 (almost 9%), while the R&D budget of UK healthcare companies fell by 18% (from €1.56 billion to €1.27 billion).
“Biotechnology is a difficult business,” admits David Parry, CEO of the South East Health Technology Alliance (SEHTA). “We have one of the most successful health technology industries in the world, but biotechnology is a particularly challenging field to operate in, and the figures reflect this.”
The reason biotech companies face such a struggle lies in the market they operate in. Regulatory and compliance issues, added to often complex and always expensive R&D processes, and long business development cycles make biotech a daunting proposition, especially for investors. “The fundamental problem the sector faces is that it’s a long and expensive journey from concept to market,” explains David. “It could take 10 years to reach a zero net position in a biotech company!”
BFAS
Enter the Biotechnology Finance Advisory Service (BFAS). Administered by Finance South East on behalf of SEHTA, BFAS aims to change the way in which finance is raised for the sector, making it easier and more effective. Chief Executive David Parry explains, “SEHTA’s aim is to make the Health Technology sector in the South East more competitive, by offering advice and support, and by helping companies to work together. BFAS is a great example of the realisation of those aims.”
Big business Daunting or not, biotech is big business, and set to be bigger. It’s estimated that one third of the UK’s drugs will soon be biological-based. And of course, when a drug is successful, it can be wildly successful. Take Herceptin, a biological drug marketed by Roche, and one of the new cancer treatments on the market. Herceptin followed a typically slow progress to market: the drug was licensed in the UK for the treatment of advanced breast cancer in 2000. Two years later, the National Institute for Health and Clinical Excellence (NICE), which decides what drugs and treatments should be available on the NHS in England and Wales, issued guidance that health trusts should provide it for advanced-stage patients.
Now, however, after many years’ research, and similarly long approvals processes worldwide, Herceptin is enormously profitable, generating revenues in the region of $2 billion a year for manufacturer Roche. More and more, pharmaceutical companies are aiming to develop “blockbuster” drugs like this, capable of generating turnover in the $billions, and funding research into the next generation of biological drugs.
Raising capital For companies without deep pockets, or blockbuster drugs to bankroll their R&D, it’s a case of raising investment capital however. And that can be a challenge. “There is a lead time of up to 10 years before a biotech begins to generate a profit,” says David Parry, “and, frankly, investors in the UK haven’t had much stomach for it. That’s why the BFAS service is so important.”
Cheryl Scott, Manager of BFAS at Finance South East, agrees, “What our experience with BFAS tells us is that there is a big gap in the sources of funding for medical/health technology companies. They require much larger investment, earlier in the business lifecycle, than other businesses, because the regulatory approvals process is so much more rigorous than in other sectors, and because their route to market is often a convoluted one. Many investors are put off because health technology businesses won’t be as developed as they might expect for a certain level of investment. Their ROI is often slower (though not lower) than companies in other industry sectors.”
BFAS is aimed at small or medium-size firms in the SEEDA region that have a product or service designed for the biotech or healthcare market. They need to become a core member of SEHTA (South East Health Technologies Alliance), which is free. There are two levels of engagement, but whatever the level, BFAS process helps companies to make the most of opportunities to attract investment.
“We spend a lot of time working with companies looking at their business planning,” explains Cheryl. “Investors are looking for companies that are well set up, and with business plans that are obviously deliverable. We can help by identifying flaws in a business plan and helping to fix them before a company goes looking for finance.
“For example, companies often don’t realise how long the sales cycle on a new type of product might be, or they may not appreciate the impact of putting distributor relationships in place. Any of these misapprehensions can seriously distort a business plan, and deter a potential investor.”
Although it has only been running since May 2006, BFAS has already been so successful that FSE is considering rolling the model out as a basis for services to other sectors.
The addition of BFAS has been welcomed by the Enterprise Hubs. Healthcare Hub companies across the Enterprise Hub Network can be linked into SEHTA and to the BFAS scheme, with all of the additional commercial advantages and networking benefits that provides. Enterprise Hub Network Director Marilyn Huckerby commented, “The Health technology industry is vital for the South East, and we’re delighted to be able to give our young client companies access to the specialist services that SEHTA and BFAS offer, in addition to the more general business development support they get from their Enterprise Hub.”
Changing attitudes The tide in biotech investment may finally be turning. David Parry thinks he sees signs of attitudinal shift. “I’d like to think that the message is getting through,” he says. “There are a handful of companies in the UK who will take a longer view, but they don’t have unlimited funds, so competition to attract their interest is severe. And there are companies in the US prepared to invest, but at present they are the exception. We are seeing more investment from the big companies too: GSK, AstraZeneca and Pfizer have all bought biotech companies in the past year – they’re recognising that biologicals should be part of their portfolio."
ABOUT BFAS
BFAS is aimed at small or medium sized biotechnology firms in the SEEDA region. They need to have a product or service designed for the healthcare market, and be a core member of SEHTA (South East Health Technologies Alliance).
Companies benefit from the services of a dedicated adviser from Finance South East who has specialist expertise and experience in the biotechnology and healthcare sectors. There are two levels of service:
STAGE 1: Light Touch Service
A one-to-one meeting to discuss the company's business proposition, the current position and what is needed to move the company forward Access to clinics, seminars and workshops covering sector specific topics Help in locating specialist service providers and professional advisers Identification and signposting to appropriate sources of finance and other assistance available through Finance South East, Enterprise Hubs, Business Link and others Companies completing Stage 1 and meeting specific selection criteria will be referred to Stage 2:
STAGE 2: In Depth Service
Investment Readiness advice and specialist Fund Finder assistance 36-point assessment of the business plan from an investor’s point of view and an action plan to achieve investment readiness Grant award to subsidise costs for any expert assistance that might be required to finalise the business plan, as identified during the investment readiness process Presentation to a specialist panel to include investors and sector specific experts with constructive feedback Fund finding assistance to locate suitable potential investors
Author: BFAS Project Manager - Dr Cheryl Scott
Created Date: 17-12-2007
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