How to solve the funding puzzle…

The biggest challenge facing start-ups and science SMEs? It has to be funding. Here, Dr Geoff Davison considers some of the current opportunities available for accessing that all important financing

Life science research continues to evolve and develop over time resulting in revolutionary work that has led the way to innovative discoveries, allowing the industry to grow and progress at a phenomenal rate. However given recent pressures on large pharmaceutical companies, major global healthcare challenges and economic conditions, small to medium sized enterprises (SMEs) face significant challenges in accessing sufficient funding.

Businesses can secure funding from a number of sources:  government agencies, private non-profit organisations and charities, industry and via equity and venture capital. Investment in both early stage and translational research and development is key in life science and securing of funding at each stage of development is a core requirement.

Funding from industry and venture capital

The challenges facing big pharma regarding patent cliffs and other issues have been well documented elsewhere. As a result pharma must look to collaborate much more and externalise more of its research. This presents a significant opportunity for SMEs in that it opens up both a significant source of potential funding for research and development but also a potential route to market should a successful collaboration lead to a licensing deal or even an acquisition. Larger companies are increasingly looking for new ways to catalyse their engagement with SMEs and many have developed initiatives which aim to foster deeper engagement and also allow them to engage with SMEs at an earlier stage. Initiatives such as the BioHub at Alderley Park¹ which means that SMEs are sharing space with AstraZeneca employees and the Stevenage Biocatalyst² on the GSK Stevenage site address this broad aim. Whilst the J&J Innovation Centre³ approach is a new way to partner aimed at advancing early stage innovation in a more ‘shared risk and reward’ manner.

With regard to equity and venture funding, investors can find it difficult to understand this sector and the associated risk profiles especially given that it takes many years to take a product through research, overcome regulatory barriers and find a route to market. This means that many SMEs struggle to raise the finance required to reach the point where their proposition becomes attractive to major investors. Alternative approaches such as more sophisticated networks of business angels and crowd-funding are also featuring in the sector, and although raising relatively small amounts they have the potential to focus funding on health issues that would otherwise remain unaddressed.

Non-profit organisations and charities

Non-Government organisations and charities often issue calls related to work around their specific interests.  The Wellcome Trust is a global charitable foundation which aims to address five major challenges that confront human and animal health: genetics and genomics, understanding the brain, combating infectious disease, development, ageing and chronic disease and the issues of environment, nutrition and health⁴.

Many of the non-government organisations are related to individuals with enormous wealth or influence who have chosen to focus upon areas of significant unmet need and in particular those in the developing world. The Bill and Melinda Gates Foundation⁵ and the Clinton Foundation⁶ both invest significant sums of money into potential solutions aimed at addressing critical challenges such as the spread of malaria, TB, HIV and other neglected infectious diseases. This can be a very significant source of non-dilutive funding for companies where this approach fits with their business model.

Funding from the public sector

The economic downturn in 2008 led to many government budgets being cut, with some expecting the decline to continue over the coming years or even a decade. With funding potentially limited, there is a view from some life science researchers that certain areas such as translational research and clinical research appear more likely to receive funding than early stage research where the investment risk is much greater. In addition, funding is expected to become more concentrated around centres of excellence, making it more difficult for some institutions to access resources.⁷

It has also been widely reported in Europe that there are difficulties in attaining funding from the public sector on a scale and duration which can have a significant impact⁸. Fundamental scientific research is an evolving process which inevitably needs sustained resource to take it to a point where its impact can be measured. It does not lend itself to being constrained to a quantifiable timeframe for results to be published and measured.

In an aim to coordinate and fund research on a scale sufficient to have global impact, Horizon 2020 is the biggest EU Research and Innovation programme ever with nearly €80 billion of funding available over 7 years up to 2020. This is in addition to the private investment that this money will attract. It promises more breakthroughs, discoveries and world-firsts by taking great ideas from the lab to the market⁹. One of the key areas for Horizon 2020 is the Health, Demographic Change and Wellbeing challenge which is an investment in better health for all. It aims to keep older people active and independent for longer and supports the development of new, safer and more effective interventions. Horizon 2020 will also contribute to the sustainability of health and care systems.  During the first two years of Horizon 2020 (Work Programme for 2014/15), the EU will invest some €1200 million in this Challenge.

In the UK, the life science sector is also recognised as being of strategic national importance¹⁰.  Historically, the UK is second only to the US in terms of research output for new drug candidates. The UK has the Biomedical Catalyst programme which has invested more than £150m into this area and in October 2010 the Government announced that £200m would be invested in a network of elite technology and innovation Catapult Centres including significant investment in facilities and infrastructure for the life sciences¹¹.  The Catapults are an important and integral part of the UK’s innovation system to bridge the gap between universities and business, giving access to state-of-the-art equipment, expertise and new funding streams which help to commercialise the outputs of Britain’s world-class research base.  Businesses will be able to access the universities’ expertise for R&D requirements, identifying new opportunities for working together and collaboration.

Securing funding from a number of the available routes for biomedical research carries many benefits for companies. By accessing a mix of public and private funding, SMEs effectively de-risk private investment and are then able to benefit from the platforms in place to work in partnership and network through membership organisations and specialist life science and investment events. Companies seeking finance are thereby brought into direct contact with investors, charities and government bodies and also with those companies and individuals who already have a track record of raising finance. These platforms and organisations help to facilitate and develop relationships with potential partners for businesses and enable better understanding of the funding landscape in the life sciences sector.

Company pitching also offers a vital route to secure investment and provides an opportunity to showcase capability and commercial potential which in other circumstances might not happen. Via these platforms, relationships and increased profile, SMEs and university spinouts are able to take their messages and the opportunities they present to investors and larger companies. Having universities and other research infrastructure also involved is extremely important to leverage their capabilities through engagement with the SMEs all of which helps to further innovation.

References

1. BioHub at Alderley Park. (Internet)  http://www.biohubatalderley.co.uk/  [Accessed 13/11/2014]
2. Stevenage Bioscience Catalyst. (Internet) http://www.stevenagecatalyst.com/  [Accessed 13/11/2014]
3. Johnson & Johnson Innovation Centers. (Internet) http://www.jnj.com/partners/innovation-centers [Accessed 13/11/2014]
4. The Wellcome Trust. (Internet) http://www.wellcome.ac.uk/our-vision/index.htm  [Accessed 7/11/2014]
5. Bill & Melinda Gates Foundation. (Internet) http://www.gatesfoundation.org/  [Accessed 13/11/2014]
6. The Clinton Foundation. (Internet) https://www.clintonfoundation.org/  [Accessed 13/11/2014]
7. Leica Microsystems, 2014. The LifeSight Report
8. Jenny Rohn, 2014. They have chosen ignorance (Internet) <http://www.theguardian.com/science/occams-corner/2014/oct/09/they-have-chosen-ignorance-open-letter> [Accessed 16/10/2014]
9. The EU Framework Programme for Research and Innovation, 2014. What is Horizon 2020?   (Internet) http://ec.europa.eu/programmes/horizon2020/en/what-horizon-2020 [Accessed 29/10/2014]
10. UK Life Sciences Strategy, 2011. (Internet) https://www.gov.uk/government/publications/uk-life-sciences-strategy [Accessed 30/10/2014]
11. Catapult Centres, 2013. (Internet)  https://www.catapult.org.uk/  [Accessed 7/11/2014] 

The Author:

Dr Geoff Davison, Chief Executive Officer, Bionow – a not for profit membership organisation for the biomedical / life-sciences industry in the North of England.

Contact:

www.bionow.co.uk