54.  The UK has a fine tradition of biotechnology research and is improving its capacity to translate that research into commercial applications. But commercialisation is only the beginning of the process and a vibrant biotechnology sector relies on thriving companies as much as it does on a flourishing research community. After the excitement surrounding biotechnology firms that reached its peak in 2000, the sector everywhere has experienced problems — it seems capital is far harder to come by for biotechnology firms than it was a few years ago, and where it is available it is possibly on worse terms too. The public markets seem, to all intents and purposes, closed to new biotechnology firms.

55.  Central government in the UK has not invested public money as heavily in biotechnology firms as have many other countries. In Germany and the USA we heard of considerable state-level public money being available too. Whilst some Regional Development Agencies (RDAs) do have schemes to support and encourage biotechnology, they are not on a comparable scale.[48]

56.  The absence of government support could be regarded as a good sign — that the UK biotechnology sector is able to survive without extensive public support and subsidy. However we received evidence that the private support infrastructure is not without its problems either — for instance the quantity and quality of venture capital on offer. It would be a matter of considerable concern if UK companies were faced with the twin obstacles of market failure and a lack of public support (at least in comparison with competitor countries).

Government Support

57.  As noted in our introductory chapter, the biotechnology industry is characterised by high levels of state involvement. The level of support varies in its nature and its extent but is highest at the earliest stage of company formation and development and diminishes thereafter.

58.  In the UK there are a variety of schemes that biotechnology firms can access. Few actually involve direct financial support. This contrasts with Germany where we heard of quite extensive funding being given to small biotech firms. In the UK the LINK scheme, run by the Office of Science and Technology (OST), provides funds over two or three years for joint projects between universities and business. LINK support for bioscience is estimated at £10 million per annum.[49] The DTI's SMART scheme provides up to £150,000 to Small and Medium sized Enterprises (SMEs) to develop new high technology products and processes. Because an SME is defined as a company with fewer than 250 employees, biotechnology firms, which are mostly relatively small, can access this. SMART awards totalled £35 million in 2002 with approximately 10% going to biotechnology firms.[50]

59.  There are other schemes that provide advice and mentoring rather than funds. BIO-WISE is an on-line information service that promotes awareness of biotechnology and its potential. The Biotechnology Mentoring and Incubator Challenge (BMI) provided mentoring and advice to fledgling biotechnology businesses. But it also offered a subsidy, through matched funding, for building biotechnology incubator space. The Biotechnology Enterprise Platform Challenge (BEP) provided £5 million to establish several centres with a portfolio of intellectual property in particular fields with a view to establishing collaboration between them and other institutions working in those area. Both BMI and BEP are closed to new applications.

60.  The University Challenge Fund (UCF) has provided money to help establish a number of companies. UCF, funded jointly by the DTI, the Wellcome Trust and the Gatsby Charitable foundation, was a competition for universities and research institutes to gain part of the £45 million available to establish seed funds to help high technology spin-out companies by investing up to £250,000 in commercialisation activity from their institution. 37 universities and research institutes won funds, either independently or as part of consortia, ranging between £1 million and £4.5 million. They were also required to contribute 25% in matched funds. Several witnesses expressed concern that the UCF funds will not be recapitalised in future. It is our impression that the scheme has proved popular.[51] According to some provisional figures it is estimated that UCF has provided £3.613 million to some 25 biotechnology firms in 2001and 2002.[52]

61.  There are also various schemes run by RDAs, many of which have identified biotechnology as a priority. These include networking and mentoring schemes, regional venture capital funds, incubator development, and, in Scotland, the Proof of Concept fund aimed at providing development funds to encourage commercialisation.

62.  In comparison with the other countries we visited these schemes are small. Germany, for instance, provides seed funding and extensive help for start-up companies through matched funding for private venture capital as well as guarantees for private venture firms investing in biotechnology companies.[53] In the United States, the level of involvement by the individual states was striking. A number of states are investing considerable amounts of money to try to establish biotechnology clusters. For instance, Michigan has committed $1 billion - $50 million per annum over 20 years — to develop biotechnology in the Detroit area. Kentucky, Wisconsin and Florida, to name only a few, have committed considerable funds to try to attract established biotechnology companies to their regions.[54] We spoke to a representative of the Maryland Department of Business and Economics who told us of their extensive range of funds for biotechnology. They have various schemes providing equity investment and grants to small firms, and seed funds to spin-outs, and would, at any one time, have around 40 companies in their biotechnology portfolio.

63.  In their written submission, the BIA suggested that government funding provided useful, though small, quantities of money. However, for the most part, for the companies we spoke to at least, government funding played a negligible role in their establishment and subsequent growth. The need for a well funded research base was reiterated to us frequently by the companies. However, there seemed no particular appetite for public subsidies or grants to companies and, as will be discussed below, the main request was for better private funding.

64.  It should also be noted that there is also the very real danger of making it too easy to start new firms; Germany would appear to provide a good example of this. From the mid 1990s, Germany introduced a variety of measures to establish itself as a leading biotechnology nation. Given its late start in commercial biotechnology, this took the form of the policies to help spin-out and start-up companies noted above. As a consequence a lot of companies were established in Germany in a very short space of time and difficulties have arisen from this. Germany's venture capital market is small — it has not traditionally been a significant source of finance there. It seems that with the establishment of so many biotechnology companies in so short a time, the demand for venture capital has outstripped its supply. Whilst this problem has been exacerbated by other economic difficulties in Germany, it highlights the need not only for an efficient technology transfer process, but also for the subsequent private infrastructure, such as a developed venture capital market, to sustain these new companies.

65.  The German government sought to reduce the risk associated with biotechnology to try to attract venture capitalists to invest in the sector. This worked initially. However, as the companies have grown, we were told that there are increasing reservations in both government and industry circles about whether many of the companies are commercially viable and should have attracted funding at all. In contrast the dominance of private venture capital in the UK ensures that a careful scrutiny of the company is undertaken at an early stage and a certain level of quality control is maintained. Whilst the problems of the German biotechnology sector can in part be seen as a reflection of the current business climate there, nonetheless they are also a result of the very rapid growth of small companies and, with the reduction of risk, a lack of scrutiny of those small companies. Not only have too many companies been formed for the private capital sector to sustain, companies have been formed that probably should not have been, with technology with little commercial viability and without the levels of necessary management expertise in place.

66.  R&D tax credits are widely used across the world to provide a stimulus to innovation. They were introduced in the UK in 2000. Under the UK scheme, SMEs have been entitled to a tax credit on their non-capital R&D expenditure over £25,000 at 150%. Or, if the company is not making a taxable profit, as is the case with most biotechnology firms, losses can be surrendered to the Exchequer in return for a cash payment of 24% of total, eligible R&D spend. The scheme was estimated to provide £150 million of support to R&D activity in the UK. European State Aid rules confine the scheme to SMEs but an R&D tax incentive for larger firms is to be introduced. It is to be hoped that this will diminish the perverse incentive inherent in the existing scheme, no doubt recognised by the Government, to restrict company employee numbers in order to remain eligible for the tax credit.

67.  The scheme was amended under the 2003 budget. The threshold was lowered from £25,000 to £10,000; the range of staff whose costs could be included was increased; and SMEs in receipt of government grants other than state aid, who were excluded from the scheme under EU state aid rules, will be eligible for some support under the scheme for larger businesses. Some ICT costs for new companies are also now included.

68.  R&D tax credits are evidently popular and their extensions welcomed.[55] Research has suggested that R&D tax credits do boost R&D activity nationally. The Institute for Fiscal Studies notes that R&D expenditure is increased by subsidies such as tax credits — a 10% reduction in the cost of R&D can lead to an increase of 1% in the short terms and as much as 10% in the longer term.[56] However, it was pointed out to us that similar schemes on a more generous scale have been adopted in other countries such as the USA; so while welcome, the tax credits in themselves will not necessarily make the UK more popular as a centre for biotechnology.[57] It also seems that the application process is complicated and bureaucratic.

Venture Capital

69.  The biotechnology industry relies on venture capital for its survival. In a sector dominated by firms with little in the way of tangible assets to act as collateral for loans — their intellectual property and the know-how of their staff are their primary assets — and which require a considerable quantity of money to sustain themselves, venture capital provides the main route of funding. Given this, any shortcomings in the provision of venture capital in the UK will have a considerable, detrimental impact.

70.  The British Venture Capital Association (BVCA) — the venture capital trade association — has 160 members. Of those 16 have biotechnology as their only or primary focus and another 22 invest in biotechnology. In 2002, BVCA members invested £58 million in biotechnology companies out of a venture capital investment of £5.5 billion — about 1.2%. This was down from 2001 figures of £68 million invested in biotechnology out of a total of £4.7 billion — about 1.4%. Interestingly, the total number of biotechnology companies invested in was actually greater in 2002 - 75 companies rather than the 57 backed in 2001 — which implies that the venture capitalists are putting up less per biotechnology investment than in previous years.[58]

71.  As well as supplying the core finance for the bulk of biotechnology firms, venture capital firms have also provided valuable advice to the companies they invest in. In a relatively young industry dominated by scientists, it seems that experienced, good quality management is scarce.[59] Venture capitalists would normally put a non-executive director with extensive management experience on the board of the companies in which they invest.[60]

72.  When venture capitalists are looking at a potential investment they require certain criteria to be met. They need to be sure that the science upon which the company is based is sound; that the intellectual property is properly protected; they are increasingly looking for a portfolio of potential products or a platform technology that can be used as a basis for a variety of products; they look for a good management team and a clear strategy for the company; and finally they look for a clear 'exit point' — an obvious moment when the venture capitalists will be able to recoup their investment, through a trade sale or an initial public offering (IPO) on the Alternative Investment Market (AIM) for example — usually within seven years of the initial investment.[61]

73.  It was emphasised to us that these timescales were not absolute and that some companies have been funded for considerably longer than this.[62] However, venture capitalists would normally expect to see at least a viable exit strategy in the foreseeable future within this timeframe. Whilst the five to seven year timeframe represents a longer period than venture capitalists would commit funds to in other industries, nonetheless it does create certain problems in biotechnology. Bringing a drug to market can take 10 to 12 years or more; but with the shorter timeframes favoured by the venture capitalists, there is a danger that companies will either find themselves short of cash at an important stage of development, or pushed towards research programmes with the prospect of more immediate returns.

74.  Though an IPO may be a possibility at this stage (i.e. after about seven years) under certain circumstances, there is a high likelihood, especially given the drop in confidence in biotechnology firms that the public markets have experienced in recent years, that it will not.[63] A trade sale may also be a possibility, though this is dependent on finding a buyer from the large pharmaceutical firms and may not be an appealing prospect to the company itself. Furthermore, under such circumstances there would be a high possibility that any return on the technology that did eventually emerge would go abroad.[64]

75.  This problem with the funding cycle for biotechnology firms is not exclusive to the UK. In the United States we heard complaints about a funding 'valley of death' that companies experience after a couple of rounds of venture capital funding. However, the sums of money invested by venture capitalists in the USA are far larger and this would presumably alleviate the problem. Anecdotal evidence from the founder of a Cambridge-based biotechnology company was that the quantities invested in a single company by USA venture capitalists might be up to 10 times larger.[65]

76.  In the UK not only is the quantity of money invested smaller, but it would normally also be given in tranches. British venture capitalists usually put in place certain benchmarks by which the progress of a company in which they have invested can be measured — subsequent instalments of money would be contingent on these benchmarks being met. The BIA felt that this was a serious constraint on companies' ability to act strategically and to respond to new situations swiftly.[66] It would also, presumably, make companies tend to concentrate on meeting the next performance target rather than focussing on longer term goals.

77.  The BVCA conceded that the tendency not to invest such large sums of money, and to pay the money in tranches, could slow the development of the company in which they are investing. However they considered this a necessary consequence of the smaller venture capital funds, relative to the United States, that their members are working with: "we are managing much smaller funds here than in the United States, so we have less ability to chuck in very large amounts of capital."[67]

78.  The UK venture capital market does not seem to be geared to providing finance to the smaller, early stage biotechnology firms. In the USA we heard that specialist venture capital firms exist who focus on providing seed capital and finance to very early stage firms, and who look to exit by passing the company on to the mainstream venture capitalists. The UK does not seem to have this level of specialisation amongst its venture capital firms.[68] That UK venture capital firms do not focus on early stage companies was confirmed by the BVCA.[69] The focus on more developed companies is evident in the BVCA's list of investment criteria mentioned above: a portfolio of different products and an experienced management team are unlikely to be characteristic of companies at the earliest stage of development.

79.   There are several reasons for neglect of the early stage companies by the venture capitalist firms. The perceived risk associated with these types of firm is one. The perception is that many young biotechnology companies will not survive and that they are most likely to fail in their early stages — despite the greater sums of money involved, later stage companies are seen as a less risky prospect because their R&D is at a more advanced stage and consequently a clearer picture of their prospects can be gained.[70]

80.  But there are other practical issues, as well, that act as disincentives to venture capitalists thinking of investing in these companies. For instance they do not like to deal with such small sums of money: "Very early stage investing (seed round investing, as we would call it) as it is typically characterised is a…very, very difficult area for the traditional VC community to get involved in…because it is putting very small amounts of capital to work. If you need to make a myriad of investments of very small amounts you have a huge portfolio and you get into problems with the business model".[71] This is exacerbated by the tendency of venture capitalists to invest as part of a syndicate of venture capitalist firms. In order to spread their risk, venture capitalists often syndicate their investments so the amounts of money available would normally be too big for the earliest stage companies. One venture capitalist firm we spoke to, who specialise in early stage investments, claim to be having difficulty finding partners to syndicate with.[72]

81.  We have also heard that venture capitalists are having to concentrate their resources on their existing portfolio of companies rather than look to finance new ones. Companies that gained their first round of venture capital funding a few years ago require subsequent rounds of finance. However, with the enthusiasm about the sector amongst investors reduced from its levels in the late 1990s, and with less confidence that the venture capital funds will remain plentiful, venture capitalists' priority is to maintain the flow of money to companies in which they have already invested rather than to take on new ones.[73] This is exacerbated by the current 'bear market' in the high technology sector which makes biotechnology IPOs extremely difficult. With this exit route closed off, venture capitalists are faced with the prospect of continuing to fund companies with quite substantial sums of money, where, under different circumstances, they would normally have expected to have already had their return. This clearly presents problems for companies at earlier stages of development who are trying to raise their first round of venture capital and may even spread to affect companies looking for a second round of finance.

82.  Moreover, venture capital does seem a parochial industry and there is nothing to suggest that gaps in its domestic supply will be filled from abroad. We heard that even established clusters such as Raleigh-Durham in North Carolina have to work hard to persuade venture capitalists from California and Massachusetts to take an interest in their region.

83.  The UK venture capital market does not serve the smaller firms well. As a response to this, government money has been concentrated on seed and early stage funding through schemes such as the UCF. Whilst government measures to increase the flow of funds into venture capital would seem appealing, the problems of Germany should serve as a warning. Increasing expertise in university Technology Transfer Offices may in time provide more attractive prospects for venture capitalists. However, even if better companies are spun out the 'structural' factors that deter the venture capitalists from becoming involved in the earliest stages would remain. The regional venture capital funds that are currently being established may provide valuable support in the absence of private funding. We received no evidence as to whether — and if so how — small biotechnology firms are using such funds: and, in any case, the funds are too new for any firm conclusions about their usefulness to be drawn yet. However it is important that the rigorous scrutiny of new investments and strict commercial criteria that one would expect from private venture firms is maintained by these public funds.

The Public Markets

84.  The conventional route by which venture capitalists have sought to exit their biotechnology investments has been either through trade sales or through IPOs. Whilst trade sales remain a popular option, the impression we gained was that most of those founding biotechnology firms aspire to take their companies public. To date some 51 UK biotechnology companies have floated, accounting for 48% of the European total. However the experience has not been without its problems and the market is, in effect, closed to new biotech IPOs.

85.  This is partly a reaction to the general collapse of technology share prices, and, more specifically, to the overpricing and subsequent falls in biotechnology share prices: "During 2000 we had obviously a huge technology boom and tech investors and telecoms investors were looking for the next big thing and thought it was biotech. So valuations got pushed up to unsustainable levels" [74] But there seems to be more to the current scepticism with which the markets view biotechnology firms than a simple reaction to overpricing.

86.  The markets have clearly responded to the performance of the biotechnology companies that have floated. Whilst some are either beginning to deliver profits or bring drugs to the market, or at least hold out the promise of doing so in the medium term, others are apparently failing to live up to the expectations that investors had of them at the time of floatation. To some extent this has been true of biotechnology companies the world over, but it seems to be more so of European firms — one of the Investment Management Association representatives that we saw, who had considerable experience of the biotechnology market, said, "I think it is fair to say that as far as the UK biotech sector is concerned it would be difficult to argue that it has been an area where you could make successful long term investments. There is a shortage of companies that have come public and have really become international class successful".[75]

87.  To emphasise that this is a specifically European, rather than general biotechnology sector, problem, one UK biotechnology fund invests 80% of their total money in North America[76] — "the reason why this is the case is because there are a lot of very successful biotech companies in the US which could be seen as role models for the emerging ones, whereas there are not the same success stories in the UK".[77]

88.  One reason for the relative failure of the British, and indeed European, public biotechnology companies can be discerned from our evidence. A criticism made to us was that too many companies have floated too early during biotechnology's 'boom' years. IPO has been viewed by biotechnology companies very much as a further stage in the development process — after two or three rounds of venture capital finance, IPOs have been seen as merely the next step in raising cash to continue the development process. These companies could therefore be some five years or more away from a finished product at the time of flotation; and with an extensive, expensive and hazardous clinical trials process to be negotiated, the chances of failure are still high. It does appear that, in the excitement that surrounded the biotechnology sector, companies were allowed to float at too early a stage of their development.

89.  The result of this is a gloomy outlook for many public biotechnology companies. Some successes notwithstanding, many are still trading below their cash balances; in effect, their technology is considered by the markets to be worth less than nothing. A Financial Times article noted that: "Investors have lost patience with tales of dizzying scientific achievements and want to start seeing results".[78] Whilst in many instances investors have been aware that they have been investing in potential, clearly they are now demanding some prospect of this potential being realised.

90.  The realisation of this has prompted fund managers to become more stringent in the criteria that they apply to potential biotechnology investments. They are now looking for companies with drugs in late stage (i.e. stage II or III) of clinical trials, a portfolio of drugs in the pipeline, experienced management drawn from big pharma or the financial sector, and sufficient cash reserves to take the company through the inevitable fluctuations in the market — "if you put those attributes together it is fair to say that at the stage of development that we are here in the UK there are relatively few companies that would satisfy these criteria".[79]

91.  There are other factors that have not helped UK biotechnology firms in the public markets. It seems that the markets have taken a dim view of companies that have had to return to the markets on several occasions to try to raise more capital. This has been exacerbated by constraints on public companies trying to raise private money. It seems US firms that have floated may have benefited from instruments such as Private Investment in Public Equity (PIPE) that allow them to turn to private capital during a lean period, whereas in the UK they are prevented from doing this by anti-dilution rules.[80] However, these difficulties, whilst no doubt constraining, do not seem to be fundamental to the plight of biotechnology firms on the public markets. This, it seems, is far more attributable to the quality of the companies themselves, or at least the stage of development at which they had floated.

Business Development

92.   The difficulties that biotechnology firms have had with the public markets would seem to have significant implications for the preferred model of development that has apparently been dominant in the minds of both biotechnology entrepreneurs and managers and of the majority of venture capital investors. The pioneering US biotechnology firms such as Genentech and Amgen have apparently set the course that others have aspired to follow — from start-up, through venture capital-funded development to floatation. It seems to us that this is not a model that is appropriate in all cases, regardless of the aspirations of those involved.

93.  With finance becoming harder to find and the public markets not a realistic option, at least for the time being, companies may have to reassess their development strategy. However this may have positive results for the health of the sector.

94.  We were told on several occasions that there are too many small companies in Europe. This was most obviously the case in Germany in the wake of the aggressive drive to encourage spin-out companies. But it is also the case in Britain too.[81] If City investors are looking for larger companies with a portfolio of products at late stage development in their pipeline, this may give a spur to merger and acquisitions (M&A) activity. Because of the shortage of capital, a period of consolidation through M&A activity has been predicted for some time but has, as yet, failed to materialise on the scale deemed necessary.[82] The process is not straightforward; indeed it is genuinely difficult to find two companies whose research strengths are genuinely complementary and which are suitable to join together. However, such a development holds the potential to improve the health of the sector substantially, leaving fewer but larger companies with a broader range of research and with more potential products in their pipelines.

95.  Encouraging M&A activity could help with both pre- and post-IPO sectors of the biotechnology industry. For those private companies still relying on VC funding, M&A activity can boost the product pipeline, deepen cash reserves, and spread the quality management in the sector less thinly, all of which would improve the chances of a successful IPO, judged by the criteria that the fund managers are evidently using. For floated companies the stronger product pipeline would improve their chances of bringing a successful product to market.

96.  Obstacles to this process do not seem insurmountable. The most obvious difficulty is finding two companies with a good match between their research. Beyond this, hesitancy on the part of the company managers seems to play a role: "Managements have been reluctant to give up the dream as long as some cash remains in the company".[83] Some may also feel that their companies are undervalued in the current market and try to hold out for a better price. Others may be unwilling to give up the autonomy of directing their own company.

97.  It may be that investors in both public and private biotechnology firms will need to be more proactive in this consolidation process. We have heard that some venture capitalists have begun to pressure the firms in which they have invested into mergers and we would expect to see more of this. But beyond straightforward M&A activity there are signs that companies are coming up with new and seemingly mutually beneficial ways of working together. A good example would be the recent link-up between Roche, a large pharmaceutical company, and the biotechnology firm Antisoma. Roche, in acquiring the rights to Antisoma's oncology drugs pipeline for a five year period in return for cash and a small equity stake, have effectively contracted their oncology R&D to Antisoma for five years. Given the apparent reluctance of the large pharmaceutical companies to acquire biotechnology firms and, indeed, their tendency to increasingly spin out their own small biotechnology firms, it may be that this sort of relationship is something that will occur more frequently. We have been told that there are signs of this as the biotechnology companies look for new ways to secure a flow of cash into the company in a depressed market. This sort of activity may strengthen the sector. However, it remains to be seen whether this is a long-term development or whether it is only a short term response to a difficult climate.

Conclusions

98.  There are a number of highly successful UK biotechnology companies and more will emerge in the coming years. However, it seems that less money is available from all sources for biotechnology companies in the UK than in the USA. Government support in its various forms, venture capital and angel funding, are all on a fraction of the scale that they are in the USA. Meanwhile fund managers are more likely to invest the money they control in the American biotechnology companies than British ones.

99.  There was little support for extensive government subsidy for commercial biotechnology in the UK. It is not clear that it will make better biotechnology companies. However, there was a consensus that, without a suitably funded higher education and academic research infrastructure, the UK's bioscience strength will be undermined and it will lose the basis of a successful and vibrant commercial biotechnology sector.

100.  Perceiving market failure in the earliest stages of company formation, government policy has been targeted at facilitating the commercialisation process. Support in this area has been considerably less than in both the USA and Germany. But, as the German case highlights, it is possible to make it too easy to start a biotechnology company. The companies have to be based around commercially viable technology, and there needs to be an adequate private equity market to develop and sustain the companies once they are established.

101.  Venture capital provides the backbone of biotechnology funding and the UK has the most developed venture capital sector after the United States. Nevertheless, in comparison with the USA at least, the venture capital funds are smaller and the amount of money they are prepared to commit to each investment is smaller. A further difficulty seems to be that the venture capitalists are looking to exit long before the companies are developed enough to be an appealing prospect for the public markets. With the public markets closed to new biotechnology offerings, it may be that venture capitalists will have to wait longer before exiting and perhaps take a more proactive role in encouraging some consolidation in the sector, both of which could potentially strengthen it.

102.  The public market seems to have been the route that most of those involved in the biotechnology industry aspire to. However, it is evidently not always the most suitable option. Companies have approached IPO as merely another stage in the development process, but the conditions under which public companies operate are very different. Public companies face a much more volatile climate than private companies and are subject to far greater pressure to deliver some tangible success. It is clear that not all those companies which aspire to the public markets, or indeed all those that have already floated, have been ready for the harsher climate there.

103.  The quality and quantity of finance available to biotechnology companies is a crucial factor in the success or failure of the UK biotechnology industry. Whilst UK companies fare better than those in many other countries, they are certainly disadvantaged in comparison with their American counterparts who have access to larger funds and who consequently have larger amounts of money made available to them. Moreover, we have found evidence that UK investors are keener to invest in US biotechnology companies than they are to invest in domestic ones. The perception, at least, is that the US companies are superior to, and have better quality management than, those from Britain or the rest of Europe. This belief also helps to explain the relative shortage of investment for UK biotechnology companies. To the extent that this perception is true, it is a cause for concern. Investors are under no obligation to support a sector that they feel is too risky for them. But the role of government is to ensure a favourable regime so that investors are not deterred. Beyond this, it is the companies that must prove themselves viable commercial propositions in order to secure investment.

49   DTI provisional estimates. Back

50   Ibid. Back

51   App 4 Back

52   Critical I provisional estimates. Back

53   App 6 Back

54   A. Pollack, 'Cities and States Clamour to be BioTown, USA', New York Times (11 June 2002) Back

55   App 4 Back

56   Rachel Griffith, How Important is R&D for Economic Growth & Should the Government Subsidise it? Institute for Fiscal Studies Briefing Note No. 12 (October 2000) Back

57   App 4 Back

58   BVCA, BVCA Report on Investment Activity 2002 (2002). These figures capture investment by BVCA members only. In evidence the BVCA was confident that venture capital investment activity by non-members was not significant and that their data provided a reliable picture of the UK venture capital market: Q 3. Back

59   Eg Q 684 (IMA) Back

60   Qq 18 (BVCA) and 363 (Scottish Equity Partners) Back

61   Q 9 (BVCA) Back

62   Q 14 (BVCA) Back

63   This is discussed in more detail below, paragraphs 84-91. Back

64   Biotechnology firms' business strategies are discussed below, paragraphs 92-97. Back

65   Q 439 (De Novo). BVCA evidence would seem to confirm this: Q 20 (BVCA) Back

66   App 6 Back

67   Q 20 (BVCA) Back

68   One venture capital firm we spoke to, Scottish Equity Partners, was originally set up by Scottish Enterprise to provide venture capital to small firms. Scottish Enterprise felt that this was an area inadequately served by the mainstream venture capital firms.: Q 381. Back

69   Q 30 (BCVA) Back

70   Ibid. Back

71   Ibid. Back

72   Q 379 (Scottish Equity Partners) Back

73   R. Arnold & S. Smart, 'Funding Discoveries - 50 Years and Beyond', Business Weekly (March 2003) Back

74   Q 680 (IMA) Back

75   Q 669 (IMA) Back

76   S. Johnson, 'Are Ailing Funds About to Leave the Sickbay?', Financial Times - Money (16 March 2002) Back

77   Q 676 (IMA) Back

78   G. Dyer, 'Companies Need to Wake Up and Smell the Coffee", Financial Times (12 November 2002) Back

79   Q 670 (IMA) Back

80   Q 682 (IMA) Back

81   Q 684 (IMA). See also G. Dyer, 'Companies Need to Wake Up and Smell the Coffee", Financial Times (12 November 2002) Back

82   R. Arnold & S. Smart, 'Funding Discoveries - 50 Years and Beyond', Business Weekly - DNA Supplement (April 2003) Back

83   Ibid. Back