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Buying a Biotechnology Business

biotech

The UK's economy is often painted as being almost entirely dependent on the financial services.

However, it is easy to forget that, although mass manufacturing is on the wane, the British still make things that are consumed around the world - albeit at the more technical end of the scale.

In pharmaceuticals, in particular, the UK continues to be an international leader. It is the second biggest exporter of drugs in the world, having developed a quarter of the world's top medicines.

But it is the wider sector of biotechnology that is increasingly at the forefront of British innovation. In 2003 the sector produced revenues of £3.6bn and invested £1.23bn in research and development. A total of 224 new drugs were in development - around 40% of the European total - and had attracted £392m of venture capital.

Increasingly sophisticated

Producing medicines may attract the most interest and investment, but biotechnology can produce anything from foodstuffs such as Quorn through to microchips.

According to the United Nations Convention on Biological Diversity, biotechnology is "any technological application that uses biological systems, living organisms or derivates thereof, to make or modify products or processes for specific use."

Basically - in most cases - it means harnessing the power of micro-organisms to manufacture products and provide services that are of use to humans. And with genetic technologies becoming increasingly sophisticated, the opportunities are multiplying rapidly.

Biotechnology in the UK operates around several 'clusters' - most notably around Oxford, Cambridge and the University of Stirling in Scotland. Almost half of the UK industry is based north of the border.

Alan Muir, director of Edinburgh-based Seven Hills venture partners works with companies in the sector, helping them develop successful businesses.

He says that stem-cell technology - the use of human tissue that can grow almost any part of the body, be it organ, blood or bone - is at the forefront of the sector.

"There has been millions of pounds of investment in that area," he says.

"We are also seeing a lot of environmental protection companies using fungi and various other natural products for detection and clean-up of pollutants.

"But as always, there is a focus on therapeutics. The problem there is that for funders, it is often a long-term proposition, so there are a lot more companies focusing on early-stage licensing.

"This means that rather than taking a product through from research to being on the shelf, they can take the process halfway, or even a quarter of the way, and then another firm can take it forward another step."

At the cutting edge end of things, he says, there is a lot more cross-working with other sciences, particularly optics and engineering. One of the most interesting areas is the attempt to use micro-organisms to 'grow' electronic components such as microchips - a process Muir refers to as "growing a PC on a petri dish".

American market dominates

The structure of the industry is on the verge of change, however. Classically, Muir says, it has been composed of a large number of small companies, often too small to attract major capital.

"The challenge has been to get companies in the sector to the size where they are of interest to funders external to the UK, particularly in America," he says.

"If you look at the market, up to 80% of the market for a company's products will be in the US."

Muir's company is developing a funding mechanism that can take a product from early stage to US licensing, which can take between seven and 10 years. This will take the form of aggregating businesses so that they can seek early stage European funding, before taking that larger proposition to the US market.

Unsurprisingly, Muir believes biotechnology has a bright future.

"There is going to be an increasing pervasion of the bioscience sector. Its significance will increase, including collaboration with other areas."

The use of biotechnology to develop therapies and remedies will be at the forefront of that expansion, he adds, particularly in light of increased demand for such products from an ageing population. The only limit, at least according to Muir, will be the ability of the public purse - ie, the NHS - to pay for the new products.

Despite the health service's financial shortcomings, it's worth pointing out that having the world's largest consumer of medical products in this country is part of the reason for the UK's prominence in the bioscience sector.

Biotechnology might not sound like the easiest sector to enter as an entrepreneur, given its complexity. But the high-level, high value-added industries in which the UK is likely to specialise in the future are, by their very nature, difficult beasts.

Nevertheless, investors and owners do not have to understand the complex processes involved in biotechnology. They only have to understand the business model, which at the end of the day, is not very different to any other manufacturing sector.

Biotechnology might still be a sector for the adventurous, but the potential rewards - both financial and for the people new technologies could help - are enormous.

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