London considers £10bn 'megafund' to boost drug development

The Mayor of London Boris Johnson wants to make the city a world leader in life sciences, and aims to exploit financial expertise to boost investment in pharma and biotech.

Among the ideas being proposed is to create a £10bn 'megafund' - an idea borrowed from the finance sector- which could lower risk for investors and hugely increase funds coming into early-stage UK life sciences companies.

Johnson is hosting a meeting today to explore this and other ways of creating a more attractive environment, with representatives from pharma companies Lilly and Pfizer, London's academic leaders and investment banks.

London is already known as the world's leading financial centre, but despite this, early stage biotech, pharma and other life sciences firms have difficulty attracting the level of investment seen by rivals in the US.

The Mayor wants to find a solution to this disconnect between life sciences and finance in London, with the megafund being just one solution. This could attract a large number of investors who would not normally invest in biomedical research and drug development. In return they could have a small percentage of the royalties from successful products or licensing revenues that result.

Investors could invest simultaneously in many different drugs at different stages of development. By pooling various drug development projects into a single investment portfolio, the overall risk would be lower, with a higher chance of bringing a small number of successful projects to fruition, offsetting the failure of other programmes.

This model is well known in the financial services sector, and the conference today will focus of today's event will be to tackle the key differences in scale and complexity of life science.

Three investment banks - Silicon Valley Bank, European Investment Bank and JP Morgan will discuss the practicalities of setting up the £10bn fund, which would be made up of a mix of debt and equity finance.

Another idea is to tap into a fund jointly run by the European Commission and the European Investment Bank that is set to make more than €24 billion available over the next seven years.

Mayor Boris Johnson said: "London is one of the most powerful scientific discovery engines in the world, home to an incredible cornucopia of research, medical and financial pre-eminence. By hosting this conference we hope to harness our role as a global financial centre that will bring more life-saving drugs to market and deliver a huge boost to the economy."

Today's meeting is being co-hosted with MedCity, an alliance launched by the Mayor last year to drive forward life sciences research, development, entrepreneurship and commercialisation.

Eliot Forster, executive chair of MedCity, said: "If you compare the UK to other leading life sciences hubs, we are extremely competitive – we have huge innovation, creativity and entrepreneurial drive, and we are increasingly agile in translating exciting research into spin-out companies."

But he added: "Capital is a key ingredient that grows those companies and brings therapies to market, and at the moment we simply don't have enough of it."

Forster concluded: "If we want to develop another GSK or AstraZeneca, if we want to get a full return on the investment we put into our research base, and if we want better therapies more quickly, this is an issue we have to address."

Other ideas aimed at promoting more long term investment in the sector are being considered. These include tax incentives for investors who hold onto shares for more than 10 years – a structure which the Mayor believes could encourage them to behave more like owners and grow larger companies. Another proposal is capital gains incentives where lower capital gains tax is paid the longer it takes to get a return.