DR PHILIP WRIGHT, DR ALEXANDER DUNCAN AND DR GILL SAMUELS

TUESDAY 19 NOVEMBER 2002

  560. Yes.
  (Dr Wright) If you look at the UK since 1992 the UK has maintained virtually the same level of the proportion of total global R&D investment and that is about 9%. If you look at Europe, excluding the UK, between 1992 when it was 23% it declined to 17% in 2001. The US during the same period, in 1992 it was 36% of the total global R&D spend. In 2001 it was 54%.

  561. We know that the large pharmaceuticals are consolidating at the moment, that there have been mergers, and one of the consequences of mergers is often a cutting of budgets and a concentration of resources in particular areas. Has that had a detrimental effect on research spending in the UK?
  (Dr Wright) No, it has not. I am happy to send you a picture of that. If you look there has been a year on year increase really since before 1992. In 2001 the estimated total R&D expenditure in the UK was £3.2 billion which was an increase of 11.6% over 2000. It is estimated to increase by a further 3.5% this year to £3.3 billion. That has just been in the UK. I think generally that would reflect the global market if you consider we retain about 9% of the overall global investment.

  562. Do you do this by buying up small firms or promoting in-house? What is the favoured model? You have mergers and acquisitions, then you have your in-house facilities that remain. Do you buy up small companies as well? Is there an industry wide approach to this?
  (Dr Samuels) No, I do not think there is an industry wide approach. I think we are all experimenting with different models. There are some companies, for example like Merck, who have said that they will not acquire anybody else and time will tell whether that is the right strategy. There are companies like GSK which are an amalgam of several companies. My own company, Pfizer, acquired Warner Lambert and we are just in negotiations with Pharmacia now. It depends on the size of the company; it depends on the product portfolio. Sometimes we acquire companies to make sure that we can keep a product that we license from that company (which has been the way in which we have driven it). Companies are bought for reasons other than acquiring their pipeline; it is the pipeline that is important because of the patent length that we have when you have a large number of products coming off patent in the not too distant future and there are several companies that have that problem and you wish to maintain your income flow, then you either have to go and license a compound from any size of company or go where the product is, or you have to buy.

  563. What about the other side of the coin, as it were, the spinning out of biotech companies. There is this research group that has reached almost self-sustaining growth and you think that really they are not central to our purpose and you spin them out. Is that commonplace in your experience?
  (Dr Samuels) No, I would not say it was. But there is, as it were, an involuntary spin out whereby people from the large companies do go out and set up small companies. It is not a policy decision by the larger company; it is a decision by individuals who have an idea that they feel they cannot move on within the larger company and they will go and set something up.

  564. And do the larger companies in these circumstances say "We wish you well and we would like to take 15%"? Is there any element that the spin offs are going with a connection still to the main player?
  (Dr Samuels) No, not in the cases I was describing. I do not know if there are other examples.
  (Dr Wright) One of the successful outcomes might be acquired with somebody else. These companies have to make sure they do not have too large an equity investment by someone else to enable that as a potential outcome.
  (Dr Duncan) I think one of the points to make here is that with some of the larger companies, it is not necessarily employees going off but if they see a particular technology platform or a product which could be of benefit to them, then they may well assist with funding in some of the earlier phases and take an equity in that company. That works very well because it provides both an income stream for the startup but also provides an access or window into that company from the larger pharmaceutical.

  565. That is helpful. The experience in the UK of this approach is not necessarily mirrored elsewhere. For example, I have heard in the Swiss pharmaceutical industry it is not uncommon for spin offs to take place with the mother ship having a link with the satellite, as it were, and giving them money. But this is not a model that the British based pharmaceuticals have used, have they?
  (Dr Wright) I do not specifically know of examples of that happening, but I do know of examples where companies have provided equity funding for startups or small growing biotechnology companies. It is a different approach. It is probably much more focussed on what the products may be of benefit to the companies in the longer term. The question is, if the parent company of this individual who has gone out decides it wants to take equity, then why did they not finance that in house rather than be allowed to go off.
  (Dr Duncan) We announced yesterday, as a biotech company, that we are doing exactly that. We have an opportunity that we are not going to exploit ourselves because it is not core to our business, so we are looking at trying to attract funding to do such a spin out. CAT will retain an investment in that company, which will then be a business. To enable that company to flourish then the needs of that business must be respected and whether we then sell off our interest in that will depend on what the market is like.

  Chairman: Thank you very much. We have covered everything. It has taken rather longer than I had anticipated, but if there are any other points that we want to pick up on we will get back to you, but I think you have been very fulsome in your responses today, so thank you very much.