It’s important for investors to keep track on the repercussions of the UK’s exit from the European Union — except what will those be?
One bright shining spot in the British economy has been its leading edge biotech and pharmaceutical industry, powered by the oldest and best universities on the planet, a tradition of charitable foundations willing to fund research and development in biology and the hard sciences, and an efficient, rational and deliberate economic approach to paying for the healthcare of all of its citizens.
Let’s take one example, Oxford Biomedica, a small cap publicly traded UK based biotech that is on the frontier of genetic therapy. Way back in 1996, the company was spun out of Oxford University.
In 2003 an interview with its CEO at the time reveals the value of functioning capital markets willing to back risk taking entrepreneurs:
“We went pretty much straight to the public markets in London at that time. There was a new market called the Alternative Investment Market.
We went on to that, raised some initial funds in 1996 and then between 1996 and 2001, raised various amounts of money on the public markets, culminating in the spring of 2001 when we raised 35 million and moved to the main list of the London Stock Exchange. So overall we’ve taken about 65 million, $95 million out of the public markets.”
Of course, investors in the company in 2003 probably did not expect a 16 year wait for a product to hit the market, not to mention those investors who bought at the IPO in 1996.
However, now the company has a product, produced in coordination with Novartis, that is approved in the US, the EU and in Japan.
This product is a cure for children with advanced cancer that has resisted all treatment options.
In the words of its current CFO, Stuart Paynter:
“Kymriah, the Novartis product for pediatric acute lymphoblastic lymphoma that is also now approved for diffuse large B-cell lymphoma — DLBCL — is cleared by regulators in the U.S. and EU. It has been approved by the EMA — European Medicines Agency — and is going through the process to launch in 27 EU member states.
There are only three gene therapies marketed in the world at the moment, and this is one of them.”
Oxford Biomedica has the patent for the novel fashion for delivery of this gene editing therapy, specifically by packaging it within the lentivirus:
“In terms of our uniqueness, we have safety patents on the lentivector platform out to 2023 and some manufacturing patents that go out to the end of the 2020s and into the 2030s.
At the moment, we are the only launched lentivector, and that makes it difficult to compare our lentivectors with others. What we can say is that we have spent 20 years’ experience developing these lentivectors, and they are quite difficult to produce, so we have a healthy amount of I.P. protection.”
To put it another way, the special Coca Cola formula that cures cancer that Novartis is producing is bottled in the Oxford Biomedica patented bottles, bottles that are especially difficult to make.
This company is also producing the bottles for many, many other drugs in development stage on the behalf of cutting edge biotechs seeking cures for a variety of particularly destructive diseases.
The unique technological expertise is touted by its management:
“…It shouldn’t be underestimated how important the analytics are postproduction to make sure that your lentivector is doing what it was designed to do.
We spend months postproduction doing analytical testing using FDA-approved quality systems to make sure that lentivector is doing everything that is required.
We cannot do the direct analytical comparisons, but in terms of know-how, we are confident we are a number of years ahead of our competition in terms of lenti manufacture, in terms of scale and quality.”
What will Brexit do to this 30 year old overnight success story in the making?
The collaboration for the current cancer cure is with a Swiss based company and is dependent on multiple national and international pharmaceutical approvals, probably the most complex scientific and legal process for businesses. But even before that, the company must negotiate with its partners for a royalty agreement that bind them to payouts if their research is eventually successful.
Oxford Biomedica is now in the somewhat enviable position of having demand side pressures to increase their capacity since this sector of genetic therapy is growing so quickly that labs that process even the small batches for research are in great demand.
Recent deals illustrate this demand. Thermo Fisher is paying $1.7 billion for the viral vector for gene therapy clinical trial producer Brammer Bio, and in February of 2019, Danaher agreed to pay $21 billion for General Electric’s biopharma business, a maker of equipment for biotech drug production.
So, this business sector is hot.
Oxford Biomedica is building their lab expansion now and is planning to more than double its capacity every year.
This requires sophisticated high end lab equipment sourced globally and sophisticated high end biologists also sourced globally.
Will Brexit cripple the company by limiting access to both equipment and talent?
It’s not as if the EU is a poster child for rational economic development. The creation of costly business regulations for the common market is through a voting process for elaborate legislation that often confuses its legislators into voting for the wrong regulation.
In the words of one European voting data collection agency:
“Because they have to vote on hundreds of items every week, MEPs sometimes forget to press the voting button, or press the wrong voting button. Sometimes the voting machines malfunction. When that happens they can enter a statement into the official record, the minutes, to the effect that they had intended to vote but didn’t or couldn’t, or that they had intended to vote differently.
However, this formal statement does not have the effect of altering their individual vote, and nor does it have an impact on the overall result. Once the President has announced the result of the vote it is final.”
As British politicians debate about how they plan to eat their own Brexit cooking, entrepreneurs are left with the compounding of risk. Will the laboratory equipment be held up at the port? Will scientists not be allowed to travel and work throughout the world?
To be sure, none of this is only a British problem but as committed investors funding this process we can only hope that scarce capital and scarce labor will be permitted to flow to its most productive outlet.
We can all only hope that the cure for cancer in children does not become a victim.
Biotech Terminates CEO and Others
September 29, 2009
Biotech Innovation and Discipline Leads to Earnings Growth
November 29, 2011
Biotech and Pharma Outperform in More Stable Macroeconomy
May 07, 2012
Medical Research Service and Biotech Continues to Grow in China
August 24, 2012
