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Pension funds must invest in UK biotech, says Syncona boss

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·6-min read
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Martin Murphy, chief executive of Syncona - Ben Peter Catchpole
Martin Murphy, chief executive of Syncona - Ben Peter Catchpole

Sitting in a tiny room in the bowels of the gigantic Wellcome Trust building in London, there must have been a brief moment when Martin Murphy questioned his life choices.

It was 2012 and he had just left his comfortable career in venture capital to help the Wellcome Trust write the blueprint for a completely new type of company.

“It was a handshake deal with Bill Castell, who was the chairman of Wellcome,” the 52-year-old recalls. “I turned up and it was me on my own in this little cupboard – well, a tiny room with one small window – to write the plan.

“I said it would take 30 days and it actually took six months to get it done. But, hey, it’s always good to have a target! It was a gamble.”

Murphy wanted to use the financial power and reputation of Wellcome Trust to form a company, now known as Syncona, that would scour the country for the most promising research work. It might sound basic, but it was a radical concept at the time.

The biochemist, who holds a PhD in cancer biology, was attracted to the idea because of his background in venture capital.

A partner in healthcare VC firm MVM, he had become frustrated at the growing difference between biotechs built in Boston in the US, and those in the UK.

“The difference was not in the quality of the starting science; the difference was Boston companies were set up with a strategy to fund them all the way into product development, however long that would take, in the expectation that it would be roughly eight to 10 years,” he says.

“In the UK and Europe, the equivalent businesses were being set up with the notion of, ‘I am going to sell this business as quickly as I can to somebody else’, because the holding period for venture capital was only three to four years.

“If taking a product from lab to market takes a decade, you are timed out. It became clear to me that what we needed was longer-term capital and deep capital, and a structure that would let us invest in the beginning when the risk was super high, but continue to invest across eight to 10 years and therefore be there at the end.”

At the time, many of Murphy’s colleagues were puzzled by his ambitions. “I think people rightly said: ‘Is this going to work out? Do you actually know what you are doing and is this sensible?’ I think we have proven that it is.”

Syncona’s market value is now just shy of £1.5bn. Wellcome’s £200m initial investment has yielded a portfolio of 10 companies, the vast majority of which are British. They include Autolus, a cancer treatment company, and gene therapy firm Freeline. Murphy wants to build the portfolio out to 15 to 20 companies, creating two to three a year.

Last month, the Bloomsbury-based company said the value of its portfolio had increased by more than 50pc in 2020.

“Syncona is very UK-focused. We have no constraints on where to invest, but we have exceptional science in Britain. There is a shortage of capital and experienced people, so the lack of competition means we have our choice of the science and, for us, being local is important because we are so hands-on.” he says.

“We don’t sit here as passive investors waiting for companies to come to us; we get out into the scientific community, we roll up our sleeves, we find an academic, we work alongside them, write the plan and then start to build the business together.”

Syncona’s big focus is on cell and gene therapy treatments. The technology is on the cusp of a major medical revolution, Murphy says, and in five to 15 years, he reckons it will be routinely used.

So far, Syncona has sold two of the companies it has built: Nightstar, which has a gene therapy for people with a rare form of blindness, and Blue Earth, a molecular imaging firm. The former sold for 4.5 times Syncona’s initial investment, and the latter for 10 times, reflecting a combined profit of nearly £500m.

“The beauty of our structure is that as a balance sheet investor, the capital remains in our business and we are now re-deploying those profits,” Murphy says.

His commitment to UK biotech is perhaps why he was chosen as one of two life sciences leaders – the other being GlaxoSmithKline’s Dame Emma Walmsley – to advise the Government on its Build Back Better strategy.

He was also an adviser to the Government’s “life sciences vision”, published earlier this month. The vision laid out plans for pumping more money into the biotech sector through a £200m taxpayer-funded investment, topped up by a further £800m from Abu Dhabi’s sovereign wealth fund.

“The topic is close to my heart,” he says. “If you take a life sciences company off the bench and move it all the way through that process to be an approved product, that will cost you $400m-$500m (£289m-£362m), so it is capital intensive.

“In the UK, we have a very vibrant start-up setting and do a good job of founding companies. Historically, what we have not done is provide the scale-up capital to allow them to continue to grow, and I know the Government is very focused on that.”

Workers in a Syncona lab
Workers in a Syncona lab

But crucial to helping biotech companies grow and remain on British soil, Murphy argues, is encouraging large pension funds to invest a small proportion of their cash into the sector.

There are many ways to do this, from loosening restrictions that cap how much defined-contribution funds can invest in illiquid assets, to offering tax breaks.

“We have got to think hard about how we bring our pension assets to invest in our UK growth companies – not just life sciences, but fintech, clean energy,” he says.

“Syncona is trying to make a strong case to the Government. We know it wants UK companies to scale, because if they scale and become revenue-generating businesses, they stay resident here, so you get employment here, they pay taxes here.

“A tiny, tiny percentage from these pension funds invested in this asset class would be really meaningful.

Right now, Murphy remains firmly focused on building up Sycona’s portfolio and discovering the next big medical innovation.

The team has invested in three companies this year, two of which are spin-outs from Edinburgh University, Bristol University and King’s College. As the company matures, dividends could be on the cards.

But as far as Murphy’s concerned, there’s a lot to do before that: “From a handshake nine years ago to here, we’ve covered a lot of ground, but we are right at the beginning.”

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