From Mr Paul Morton.

Sir, I agree with your editorial “Healing the UK pharma industry” (April 22), that “if Britain is to rebalance its economy away from finance and towards manufacturing, much will depend on rekindling the performance of traditionally strong sectors such as pharmaceuticals”. The UK is second only to the US in terms of the number of citations it receives in international life-sciences journals, and yet commercialisation proceeds at a fraction of the pace.

As a specialist investor in emerging life science, we monitor many investible drug and med-tech spin-outs in the UK each year but see limited investor competition – a parlous failure of the market, especially when inflation is hurting investors and there is an urgent quest for growth.

The reasons are twofold. First, large venture funds are structurally incapable of putting enough time into early-stage assets, instead relying on a broad portfolio approach, which leads to multiple failures. Other sources of potential finance – such as grants and angel networks – either lack commercial focus or the detailed, market-specific knowledge required to invest successfully at an early stage. Taken together, these structural factors help perpetuate the second reason: outdated assumptions that life sciences are necessarily high risk and capital intensive.

Inherited from the 1990s, these attitudes obscure the growing success seen from investing in emerging life sciences. Current market dynamics create a ready supply of partners or acquirers for niche biotech companies. AstraZeneca’s top five investors recently spoke of “huge operational challenges” in repopulating product pipelines, while GlaxoSmithKline has even been accused of paying generic drug companies not to proceed with cheap copies of products that are coming off-patent. By cutting down on internal research and development, such companies are actively relying on the venture investor to deliver them new product.

The problem is: the venture capitalists aren’t there in big enough numbers in the UK. As a result, investors are losing out and world-leading, valuable intellectual property is being left to rot. In this context, the possibility of the European Medicines Agency’s forcing disclosure of drug trial results will simply create a new risk aversion in a sector that has yet to fully shed its old ones.

Paul Morton, Aquarius Equity Partners, Manchester, UK

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