Ithaka Life Sciences - Blog

Ithaka Life Sciences Ltd (Ithaka) is a provider of business advisory and interim management services to the life sciences sector.

Tuesday, 7 April 2009

New models for innovation in the biotech industry

In an earlier blog I discussed the call by Sir Chris Evans and others for the British government to provide a £1 billion bail out for the UK biotech industry. The call was prompted by fears that the UK biotech industry will collapse as hundreds of companies go to the wall due to a lack of venture capital funding. I would like now to discuss alternative models for innovation in the biotech industry.

The traditional UK biotech innovation model has been for an invention to be patented by an academic researcher, licensed by that researcher’s university technology transfer office to a biotech company that then develops a technology or product through to a demonstration of proof of concept (creating further intellectual property along the way) before licensing the accumulated IP package to a large company that subsequently markets the product, resulting in royalties flowing back to the biotech company and the university.

This is a grossly simplified summary and there are of course many variations on this theme. However, a key aspect of this model is that biotech companies play a key role in taking an early stage opportunity through to a point where the big companies are willing to get involved.

The major problem with this model is that, currently, funding for biotech companies is in short supply as investors are reluctant to part with their cash as they seek to ride out the financial storms raging across the global economy. In late February, Intercytex (a UK regenerative medicine business) announced that it was putting itself up for sale after its lead product failed in a clinical trial (http://www.reuters.com/article/rbssPharmaceuticals%20-%20Diversified/idUSLN16839220090223). At the same time Summit, another UK biotech, announced that it had failed to secure a sufficient level of funding to continue its current business strategy and may be forced to sell itself or part of its business (http://www.scripnews.com/scripnews/business/Summits-woes-continue-as-cash-resources-dry-up-115995?autnID=/contentstore/scripnews/codex/8b0bdf26-ff6a-11dd-bc01-51f4f230b844.xml).

Are there alternative innovation models available? Well, yes there are some. For example, James Lyons-Weiler of the University of Pittsburgh has proposed the development of an IP Share Market through which funders could invest in IP rather than in companies (http://www.the-scientist.com/2009/02/1/28/1/). He believes that direct investment in market-valued IP could dramatically increase the rate of development and technology transfer.
Before anyone shouts that companies would never pool their IP, let’s not forget the recent announcement by Andrew Witty, the CEO of GlaxoSmithKline (GSK) that they intend to put IP that is relevant to finding drugs for neglected diseases into a "patent pool", so they can be explored by other researchers (http://www.guardian.co.uk/business/2009/feb/13/glaxo-smith-kline-cheap-medicine).

In a similar vein, it is worth examining some Israeli initiatives to deal with the funding crisis faced by its biotech industry (http://www.genengnews.com/articles/chitem.aspx?aid=2759). Some of these initiatives are based on funding projects rather than businesses.

Giza, an Israeli VC fund, introduced a pre-seed and seed-stage investment plan called the Ofek Program, a milestone-based plan in which the firm will invest no more than $500,000 in seed funding for early-stage projects being developed into commercial ventures in an incubator setting. As a project matures, if it meets established milestones, then Giza will invest additional funds. If it does not, then Giza can cut its losses. The Ofek Program also includes early investment-round funding to bring experienced entrepreneurs and managers in-house.

A biotech incubator, BioLine Innovations Jerusalem, owned by BioLineRx (http://www.biolinerx.com/), an Israeli clinical drug development company, received a special $23 million grant from the Israeli Ministry of Trade and Industry. Unlike a traditional incubator, in which a corporate structure is built around a drug or technology, BioLineRx takes a different approach and in-licenses projects that are developed as independent programs under a single corporate structure. Successful projects can be developed further by BioLineRx or licensed out. If a project is successful, the incubator pays the government back for that project; if it is not, BioLine shuts it down.

So, there are alternative innovation models out there and, in my view, the UK biotech sector (including government, industry, investors and the research community) needs to become much more creative in exploring new ways of commercialising innovative technology.

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