Written evidence submitted by the BioIndustry Association (BIA) (RaD0011)

About the BIA

Established in 1989, the BIA exists to encourage and promote a financially sound and thriving bioscience sector within the UK economy and concentrates its efforts on emerging enterprise and the related interests of companies with whom such enterprises trade. The BIA represents innovative healthcare-focused bioscience companies, including over ninety per cent of biotech medicines currently in clinical development in the UK. BIA members are at the forefront of innovative scientific developments targeting areas of unmet medical need and this innovation will lead to better outcomes for patients, the development of the knowledge economy, and economic growth.

Summary

• The BIA welcomes the opportunity to submit comments to the House of Commons Science and Technology Select Committee’s call for suggestions for future inquiries on UK Research and Development (R&D) funding.

• Government support for medical R&D is vitally important in leveraging additional private finance, which should be considered against a back-drop of increased collaborations and partnerships across the sector. Support for the translation of such research must remain a priority to ensure economic impact is maximised.

• The BIA suggests that the Committee may wish to look further into one or more of the following topics which all relate to the funding and financing of R&D in the UK: the Biomedical Catalyst, crowdfunding, and the UK public markets.

The Biomedical Catalyst

1. The Biomedical Catalyst is a highly successful and impactful policy that effectively links academia and industry together, supports collaboration and translation, accelerates medical research and leverages significant private funding. The Biomedical Catalyst is jointly managed by the Technology Strategy Board and Medical Research Council, effectively linking up government organisations to support translational activities.

2. The fund has been well received by the sector with the application process relatively straight forward for companies to adhere to.

3. Of particular note the Biomedical Catalyst has leveraged significant private capital. In three rounds of funding £81 million has been invested into 112 business-led projects. This funding has leveraged £68 million of private capital specifically for those projects. Additionally, successful companies have often been able to leverage additional private capital beyond simply match-funding the project costs in part due to the Biomedical Catalyst.

4. Investors perceive the Biomedical Catalyst as an important part of the UK funding mix and a stamp of approval as to the quality of medical R&D taking place in the UK.

5. The BIA believes the Biomedical Catalyst provides a blueprint for government support for other sectors as it leverages significant private capital, accelerates R&D and effectively joins together different public bodies. The Committee could assess whether similar schemes could be applied across other sectors.

6. For further information please read the BIA’s Biomedical Catalyst report (http://bit.ly/BIA_bmc) or see our infographic (http://bia.me/BIABMCinfographic).

Crowdfunding

7. Crowdfunding takes many forms and is emerging as an interesting new component of the funding landscape. Forms of equity crowdfunding in particular are relevant to this inquiry given the nature of financing required by many innovative and high-growth companies. With the crowdfunding sector growing and subject to regulation, the Committee may consider investigating how the government can effectively harness this funding potential to support R&D and innovation in the UK.

8. In particular, other countries have shown how the concept of crowdfunding, e.g. large numbers of individuals supporting projects and / or companies, can be nurtured and supported through effective incentivisations and policies. For example, the BIA has proposed that the government should introduce Citizens’ Innovation Funds (CIFs), a form of regulated crowdfunding that is based on the French Fonds Comunes de Placements dans l’Innovation (FCPI) scheme.

9. FCPI is an incentive to encourage investment in innovation by mid-net worth individuals under which funds can be set up by intermediaries to collect capital and used to finance start-ups and innovative business ventures.

10. The FCPI scheme is notable for the large sums raised from high numbers of private individuals who are keen to invest in the knowledge economy in a tax efficient form without risking large amounts of their savings. In this way the government is an enabler, rather than a provider, of much needed investment.

11. The FCPI has been successful in raising almost €6bn and creating over 300 funds run by nearly 40 asset management companies. These funds have invested in over 1,000 companies including in the UK.

12. The BIA advocates framing the CIF along the same lines. The CIF would be a tax free retail investment product allowing £15,000 per person per annum to be invested in funds which are targeted towards innovative SMEs. The BIA proposes that 60% of assets are invested in private companies that qualify for the SME R&D Tax Credit scheme. The remaining 40% could then be invested freely.

13. The scheme could also be set up so that research charities are encouraged to offer this type of vehicle to donors, using their investment arms, adding to the sense of venture philanthropy which is prevalent in other jurisdictions such as the United States.

14. For further information please read the BIA’s report on CIFs (http://bit.ly/biacifreport2).

The UK public markets

15. In order for innovative high-growth companies to thrive in the UK there must be adequate access to the public markets for additional and larger amounts of capital to be secured, in order to fund further R&D and growth. This is particularly important in the bioscience sector where the majority of companies are equity-backed and the development timelines of a product are long and expensive.

16. Government support for early stage funding, such as the provision of grants through the Biomedical Catalyst and other schemes and the creation of a supportive tax environment for private investment, are important to the translation of medical R&D. However, for those companies to grow further without resorting to being acquired or licensing their advanced assets for further development by another organisation, larger amounts of capital are required, that the public markets can provide.

17. Without Initial Public Offerings (IPOs) being a viable route for companies to pursue (should they wish), growing a bioscience company to profitability is difficult. In the UK there has not been a drug-developing bioscience company able to achieve an IPO for a number of years, and by some accounts not since 2007.

18. This has reduced the development options of UK bioscience companies, leading to the necessary acquisition of many. When the ‘funding ladder’ is not operating effectively throughout, it can negatively impact the appetite of investors earlier in the development chain.

19. The Committee could assess the state of UK public market accessibility for innovative sectors such as the bioscience sector. For example, the UK position can be contrasted to the current position in the US where the public biotech market is highly active, with biotech companies having raised over $8 billion through public offerings in 2013 so far (as at 22 August 2013; source – BioWorld Insight).

August 2013