A chronic case of risk-aversion
Under-investment in UK industry is a problem not just of the credit crunch, but of long-term risk-aversion.
The following is an edited transcript of a speech given by CEO of Solace Pharmaceuticals Eliot Forster at the spiked event, ‘What future for business?’, organised in association with here
Here’s a little thought experiment: If you think back to 1995, how many people had a BlackBerry, a mobile phone or an iPod? Now compare the situation to that of 2009: how many people now own a BlackBerry, a mobile phone, or an iPod? The purpose of this is to show how much of a difference innovation can make to the way in which we live and work.
Such technological innovations mean you can go online almost anywhere and at anytime and search for any information from the net you so choose. Innovation changes the way in which we work, and the way in which we socialise. But the most important aspect of innovation in terms of the discussion around the future of business is that it also helps to drive the economy.
We all would like a BlackBerry, a mobile phone, or an iPod. We all need one of those items, so we purchase one of those items; it’s a process that creates innovation. For the first mobile phone, you needed to be a big, strapping person in order to carry it around. Yet now it’ll fit in your top pocket. That’s all about innovation, it’s all about creating something that’s desirable, and therefore something which drives the economy. Now, however, we find ourselves in dire economic straits. This has given us cause to reflect.
The industry my company operates in is healthcare, broadly speaking, and specifically pharmaceuticals. I’m one of those risk-taking entrepreneurs that seem to be so scarce these days, particularly within the British culture of cautiousness. What I do is develop treatments for pain.
In order to get to this point, three things are necessary. The first thing is an idea. We were fortunate enough as a company to get some ideas from collaborators as well as coming up with a few ideas of our own. But an idea doesn’t become a medicine. What it also needs is really, really good people, and within my organisation we’ve got some fantastic people who help to convert those ideas into something that can be used every day, on a practical basis, for the treatment of pain, whether it’s cancer pain, pain caused by injury, or pain caused by infection.
So, those are the practical ways forward for business. Unfortunately, even these things by themselves cannot bring, for example, the cancer treatment to the patient. What is also required is, of course, money. And in the pharmaceutical industry, what is required is a lot of money. In order to get a drug from a laboratory to a bedside, and from the bedside into the hands of a doctor or a patient to be used to treat pain, takes hundreds of millions of pounds.
The problem we face during a credit crunch is that money dries up. So all of the good people, and all of the good ideas amount to nothing, simply because there is no money. Some people wonder if this is merely an acute problem that will simply go away as the so-called green shoots of economic recovery emerge, and money becomes more apparent. Well, unfortunately, the lack of money for the development of bio-technologies or the provision of healthcare privately within the UK is not just an acute problem; it’s a long-term, chronic illness. And it is manifest through risk-aversion.
If someone came up with a new piece of biology and said ‘I’ve got something that will cure small-cell cancer’, and took their idea to venture capitalists, the venture capitalists would ask who that person was, and they’d then ask that person how much they want. Let’s say that person said ‘£5million’. The venture capitalists would then ask how long would it be before they would be able to take an ‘exit’, that is, the point at which they’d get their money back, plus a multiple of it. Unfortunately, the honest answer to that question is that it may be five years, it may be 10 years. And in the UK, those potential investors will all then say ‘we’re not interested’. And that we’re-not-interested problem has become chronic. It has got to such a state that there are almost no new companies starting-up in bio-pharmaceuticals or healthcare in this country.
The investment we, as a company, have received is American. I went to America with my idea because they understand what investment means, what risk-taking means in terms of money, and they think about medium- to long-term investment, and the return that can be made upon that investment.
That portrait of UK business does sound a bit doom-and-gloom. Actually what has happened is that under the current government, the Office of Life Sciences, now under the auspices of Lord Drayson, has highlighted the investment shortage as an issue. And for the UK economy to innovate itself out of the recession, Drayson feels that we need to back financially bio-technology, green technology, and we need to invest in the NHS to get better research and better healthcare.
I think that all those aspirations are spot on. The problem comes when you look at the detail of what he’s proposing. The government has put forward £150million. That is a lot of money, but it’s not enough. It’s not enough to change the way in which the UK investors invest in green technologies, in bio-technologies, in information technologies. So that needs to change.
Secondarily, outside of the Office of Life Sciences, there are institutions like the Inland Revenue, and the Treasury which are also creating real problems. To innovate out of a recession, you need entrepreneurs and some of the progressive taxation that either has been put in place or will be in place by April next year will frighten entrepreneurs away. They’ll move to countries more accepting of their desires to do well in the context of risk-taking.
So my plea is to help pharmaceutical entrepreneurs to get out there, influence the government, make them make a difference and help them convince the investment houses and the private equity groups to invest in what really will make a difference and create new jobs in the UK in key industries such as bio-technology and information technology.
Dr Eliot R Forster is CEO of Solace Pharmaceuticals.
This is an edited transcript of a speech given at the spiked event ‘What future for business? – Risk-taking and innovation after the recession’. To join in the online debate click on the banner below: