The UK Biotechnology Industry

5.  Commercial biotechnology can be dated to the establishment of the first commercial biotechnology company, Genentech, in California in 1976. The first UK companies emerged in the early 1980s. Figures vary depending on the definitions adopted, but, according to figures prepared for the DTI, the UK currently has 481 companies. In 2001 the sector directly employed 23,650 people in the UK.[3] In 2002 the UK biotechnology industry had a market capitalisation of £6.3 billion, accounting for 42% of the total market capitalisation of European biotechnology.

6.  Because of its relatively early start, the UK has until recently been the largest biotechnology nation in Europe. But since the mid 1990s the Germany has channelled both federal and länder money into its biotech sector. As a result, if judged by the number of companies at least, Germany could now claim to be challenging the UK as Europe's foremost biotech nation; Ernst & Young figures show Germany to have the largest number of biotechnology firms in Europe with 360 to the UK's 331.[4] This deduction would be misleading, however. Regardless of the number of companies, the UK's biotech industry is the most mature in Europe and its companies are larger. Germany has a high number of small companies at the very early stages of development. Germany has only 13 public companies, whereas the UK has 46.[5] The list of biggest European biotechnology companies is dominated by UK firms.[6] As a consequence, if judged by the value of the industry ('market capitalisation'), revenues, the number of products in clinical trials,[7] or numbers employed, the UK remains the largest biotechnology nation in Europe by some distance.

The Biotechnology Industry in Selected Countries

7.  In every country with a biotech industry, activity is concentrated in a relatively small number of geographical locations. In the United States the industry grew up in Boston and San Francisco and their surrounding areas. For the UK, and indeed for Europe, Cambridge has been the focus of biotechnology activity. But just as new centres of biotechnology have emerged in the USA, in places such as San Diego, Los Angeles, Seattle and North Carolina, so have they in the UK. As well as Cambridge and the Eastern region, Oxford, London, Manchester and Liverpool, York and Central Scotland all have significant levels of biotechnology activity.[8]

Distribution of Biotechnology firms by Region

Departmental Competency for Biotechnology

8.  Unlike countries such as Germany and Singapore, the UK did not create a biotechnology industry through design, but rather it evolved more gradually. A variety of government departments and agencies have responsibility for aspects of policy relating to the industry. The DTI is the government department which has oversight for the sector and its Bioscience Unit is ultimately responsible for the biotechnology sector as a whole. The DTI is also in charge of both overall policy relating to Small and Medium-sized Enterprises (SMEs) and, more broadly, economic competitiveness matters; and of promoting industry-related Research and Development (R&D) and technology transfer. In addition the DTI is the parent department for the Office of Science and Technology (OST), within whose remit lies overall science policy.[9]

9.  Regulatory competency for much of the biotechnology activity in the UK rests with the Department of Health (DoH). Furthermore, through the NHS, it is the primary domestic customer for any treatments that the industry produces; and it also has a role in the clinical trials process which drugs need to go through before they can reach the market.

10.  Although companies are increasingly emerging from the research departments of large pharmaceutical companies, the majority of small biotechnology firms have been a product of research conducted in the country's universities and research institutes. As a result the Department for Education and Skills (DfES) has a role in respect of university policy and funding and the supply of scientists and technicians to the industry.

11.  One of the key policies to stimulate investment in R&D has been tax credits — potentially an important measure in such a research-intensive industry. The Treasury, therefore, is in charge of one of the most significant policy initiatives aimed at the sector.

12.  As biotechnology is reliant on scientific discovery to provide the basis for new products, basic research is the foundation upon which the industry rests. Though a significant amount of research is funded by charities such as the Wellcome Trust, the Government is a major funder of basic research. This money is generally channelled via the research councils, the primary conduits being the Biotechnology and Biological Sciences Research Council (BBSRC) and the Medical Research Council (MRC).

13.  Much of the competency for small business support now falls to the Regional Development Agencies (RDAs).[10] In addition to generic support to SMEs, a number of RDAs have identified biotechnology as a key area for development and have implemented various schemes designed to encourage new companies or attract existing ones to their regions.[11]

Why Support Biotechnology?

14.  In relative terms the UK government has not committed massive amounts of public money to subsidising the biotechnology industry. However, this is not the case in a number of other countries which appear to regard biotechnology as a sector in need of significant public support. All pharmaceuticals development is highly research-intensive. It would normally take a decade or more to bring a drug through to market and the failure rate is very high, with only a small proportion of the discoveries that emerge from the laboratories making it through the pre-clinical experiments and the clinical trials stage. This means that it is also highly capital-intensive and the rate of expenditure of companies is very high.

15.  As noted above, the industry is heavily dependent on a continuous stream of high quality basic research to provide the discoveries upon which commercial biotechnology is built. Government foots the bill for a high proportion of basic research across the industrialised world and so the state has a heavy involvement with the industry from its earliest stages. The sector is seen as a key strategic industry for the near future. On the one hand, countries are eager to establish themselves at the forefront of a technology that has the potential to yield a whole new generation of medicines. On the other, the rate at which the large pharmaceutical companies are delivering significant new drugs through conventional (i.e. chemical rather than biotechnological) research appears to have slowed. Moreover, the problems of drug resistance and of serious side-effects to chemical drugs have made new approaches, especially those looking to harness the human body's own defence mechanisms, more attractive. With its potential to provide a new stream of innovations in the pharmaceutical sector, the strategic importance of biotechnology will increase in the near future.

16.  But it is not only the quantity of money that is significant but also the terms upon which it is available. Whereas most product development in conventional pharmaceuticals is conducted by the very large multi-national corporations which dominate the sector, biotechnology companies are usually relatively small. Given that biotechnology companies have few tangible assets — their value lies in their scientific know-how — they have nothing to act as collateral to secure loans. Whilst the large pharmaceutical companies have the resources to overcome the high cost and long timeframes involved in drug development internally, the same is not true of the biotechnology sector. As a consequence the industry is highly reliant on venture capital. However, the timescales within which venture capital firms would normally expect to see some return on their investment are rather shorter than the timeframes within which a biotechnology firm could realistically be expected to deliver that return.[12] Such mismatched timescales can prove a very real constraint on successfully bringing products through the development process and to market.

17.  For these reasons, and although this takes different forms, the biotechnology sector is everywhere characterised by relatively high levels of state involvement. This is just as much the case in a 'liberal' economy such as the USA as it is in a 'social market' economy such as Germany's where a greater degree of state involvement would be the norm. Governments have been keen to establish their nations at the forefront of an industry with such apparent potential. And because the lead-times for product development are so long and the risk of failure so high, they been persuaded that the market will not ensure the necessary levels of R&D and long-term investment. The industry clearly promises much — 19 of the almost 50 public biotechnology companies are making a profit and more will begin to do so in the coming years.[13] However, it is not yet generally delivering value for money for investors. In the meantime, however, the government needs to determine the extent of market failure and social need in order to assess the extent to which public subsidy is necessary.

4   Ernst & Young, 2003, p.4. Critical I figures show the UK in the lead with 481 to Germany's 430. Back

5   Ernst & Young, 2003, p.4 Back

6   Ernst & Young, 2003, p.9 Back

7   Ernst & Young, 2003, p.38 Back

8   Biotechnology Clusters Report. Though whether these UK biotech locations constitute genuine 'clusters' is a debatable matter which is returned to in more detail in Chapter 6. Back

9   Details of some of the schemes designed to help the biotechnology industry are discussed in Chapter 5. Back

10   In Scotland, Scottish Enterprise has plays a similar role to the RDAs. Unlike the RDAs though, Scottish Enterprise is resourced by, and answerable to, the Scottish Executive rather than the DTI. Back

11   App 1 Back

12   The funding problems of the biotechnology industry, including venture capital, are discussed in Chapter 5. Back

13   Critical I Back