UK biotech and pharma heads into troubled waters

Early in 2010, Anglo Swedish group AstraZeneca (AZN) announced that it was closing its UK Research and Development centre in Loughborough by the end of 2011 with the loss of up to 1800 jobs.  In January, U.S. based Pfizer (PFE) announced the closure of the Sandwich research facility with the loss of 1300 jobs. The excuse has been the continued consolidation of research facilities and the loss of incentives to operate in the U.K. versus other developed markets.

It is true that a series of drug price cuts in the U.K. under the last Labour government under the PPRS (Pharmaceutical Profit Regulation Scheme) to try and offset the rising drugs bill, has given less incentive to spend millions of pounds on facilities such as Sandwich, and more incentive to use low cost operations in places like India or those with higher tax breaks such as the United States. As I wrote in a previous Contrarian Investor UK post, "Is the big pharma model broken for good?,  the major pharmaceutical companies are beset by rising drug development costs, yet with a less productive research system than ever and large numbers of big selling products going off patent (http://contrarianinvestoruk.blogspot.com/2011/01/is-big-pharma-drug-model-broken-for.html).

U.K. biotech is not fairing much better. Many of the hoped for stars of the industry have had major drug failures over the last few years highlighting the fact that as few as 16% of new drugs ever make it through clinical trials. Those companies with just one or two development products have significant risks. There are plenty of home grown examples to illustrate this point.

The most infamous is probably British Biotech, a company founded in 1986 and once close to membership of the FTSE 100. Peter McCullagh was ditched as Chief Executive in 1998 when a whistleblower, Andew Millar, alleged that investors were deceived with an over-optimistic view of its cancer drugs.

Its key product marimastat was touted as the "cure for cancer", but ultimately failed in clinical studies and Millar alleged that bad data was concealed. Co-founder, Brian Richards (now Sir Brian), went on to be Chairman of Alizyme, which would ultimately have it own problems.  In May 2006, British Biotech's shares peaked at just shy of £33 valuing it at £1.3 billion, when the company merged with Vernalis in 2003, it was worth around £50 million.

Alizyme (AZN) had several promising compounds in late stage development for obesity (cetilistat), ulcerative colitis (Colal-Pred) and irritable bowel syndrome (renzapride). It ultimately went into receivership at the end of 2009 when all its products failed late stage clinical trials. It was particularly unlucky for Alizyme given the drugs had passed through earlier stage clinical trials having reached their end points successfully and about 50% of drugs fail phase III testing. It was floated on AIM in 1996 and moved to the full list in 2000, before it folded in 2009.

Antisoma (ASM) once a promising company focused on anti-cancer drugs, has seen all of them fail human testing. A few years ago, Antisoma was trading close to 50p, now it is 3p! Antisoma's last hope, AS1413 in leukaemia recently had disappointing results after its lead product AS1404 for lung cancer (in partnership with Novartis) bombed in phase III trials. Its has £23 million of cash left but little else.

Ark Therapeutics (AKT) shares were once over 150p, now they are less than 5p, after the company had to withdraw its European filing for its brain cancer drug Cerepro (sitimagene ceradenovec) after a negative opinion from European regulators in December 2009 who requested additional clinical trial data.

Recently skin care specialist, Renovo (RNVO), lost nearly three-quarters of their value after the scar treatments developer admitted that its main treatment Juvista has failed to meet its goals in a phase III clinical trial in scar revision surgery. Unlike Antisoma, Renovo has £44 million in the bank and one product left in phase II trials, Prevascar, and results from this study are expected in the second half of 2011 for skin scarring reduction.

Not many examples of out and out successes come to mind from U.K. biotech, though we have major pharmaceutical players such as Glaxo Smithkline, Astra Zeneca and Shire pharmaceuticals. Compare this with the U.S., where they have Genentech (now part of Roche), Amgen, Genzyme (now part of Sanofi Aventis), Imclone (now owned by BMS), Medimmune (owned by Astra). Why the difference? - luck or judgement?