As with so many monumental breakthroughs, it happened by accident. In the summer of 1997, two young research fellows at the University of Cambridge, Shankar Balasubramanian and David Klenerman, were using fluorescent imaging to investigate how cells synthesise DNA. Over a post-lab pint in the city’s Panton Arms, they came up with the idea of using these techniques to improve DNA sequencing instead.
At the time, that seemed an enormous and iconoclastic ambition. The scientific world was obsessed by a quest to revolutionise medicine by unveiling the mysteries of the human genetic code. Much of the research for the Human Genome Project was taking place at the richly resourced Sanger Institute just outside Cambridge. If their idea came off, Balasubramanian and Klenerman would blow that research out of the water.
"To hold your head up intellectually in Cambridge, you have to do something unusually striking," Balasubramanian tells Management Today. "The culture is such that we’re only really satisfied if we’ve made a discovery with the potential to transform things."
Balasubramanian and Klenerman weren’t just in it for the thrill of academic discovery; they were convinced that the practical applications of their ideas could dramatically reduce the time and money needed to sequence a person’s DNA. They visited the university’s tech transfer office – at the time, one man in a dusty room, who nonetheless helped them to spin out a company to commercialise the technology.
In November 1997, the duo brought five printed slides to a meeting with local venture capitalists Abingworth Management, and secured £600,000 in seed funding. The next year, they founded their business, Solexa, later raising £15m of extra capital.
Within a decade, Solexa was worth $600m. An idea concocted by Balasubramanian and Klenerman in a Cambridge pub, developed in the University’s labs, has reduced the cost of sequencing a human’s genetic code from around $3bn to less than $1,000 today. Moore’s Law has nothing on that.
Solexa is not a one-off. Cambridge is home to one of the world’s largest and most innovative life sciences clusters. There were 440 life sciences companies based in or around the city last year, according to research from Cambridge Ahead and Cambridge University. Between them, they employed 14,000 people and generated £4.2bn in revenue, an increase of 56 per cent over the previous two years.
Thanks, in part, to discoveries by Cambridge researchers, the life sciences are entering a golden age of scientific breakthrough and commercial exploitation. The global sector is expected to grow 25 per cent to $2tn by 2023.
Category-smashing advances in genetics, biologics (using biological substances like antibodies to fight disease) and synthetic biology are transforming healthcare.
Cambridge looks well placed to shape this golden age, but the future may be clouded by the UK’s indifferent record of scaling up global businesses, a deficiency that successive governments have tried and failed to cure. The British do not lack entrepreneurial verve – this year is currently on track to match 2016’s record figure of nearly 660,000 start-ups – but all too often, promising young companies stall, relocate or sell themselves to a richer American rival.
Neither Cambridge nor the life sciences are immune. Arm? Sold to Softbank for $31bn in 2016. Autonomy? HP paid $11.7bn for it in 2011. Then, of course, there’s Solexa, which relocated its HQ to California before being bought for $600m by larger American competitor Illumina, in 2007. The combined, US-based firm is now worth $46bn.
Balasubramanian says that, for Solexa to keep growing, it had a choice between investing to scale a manufacturing, sales and marketing operation from scratch or tying up with a rival that already had one. With competition growing fiercer, Solexa chose the latter. "The fact that our earliest investor, Abingworth, had been in for eight years at that stage was probably also part of the consideration," he admits.
The hope – for Cambridge, the biotech industry and the UK economy – is that this pattern can be broken. The city is virtually the perfect place to cultivate new life sciences businesses. The University’s scientific pedigree is second to none, especially in genetics and molecular biology. The local presence of such research institutions as the Cambridge Biomedical Campus, Addenbrooke’s university hospital, the Sanger Institute, the Wellcome Genome Campus and the Babraham Institute attract legions of brilliant scientists from all over the world.
There are dozens of world-class science universities, but Cambridge stands out because of the array of businesses on its doorstep, looking to convert academic research into practical – and commercial – reality. It helps that the city hasn’t had to create a complete start-up cluster from scratch around these technologies because it already had one.
AstraZeneca-Medimmune is working on antibodies to target leukaemia. Credit: Medimmune
In 1980, the proliferation of world-changing technology companies in the Fens was dubbed the Cambridge Phenomenon. Among the commercial inventions to emerge locally are pacemakers, the clear blue pregnancy test, Raspberry Pi handheld computers, round tea bags, Bluetooth, smart meters and Maris Piper potatoes. The city has also given rise to 17 ‘unicorns’ including, most famously, Arm and software firm Autonomy.
The recent proliferation of life sciences companies, the second wave of this 50-year-old phenomenon, has contributed to an extraordinary concentration of innovation in and around the city. In 2016, there were 315.7 patent applications for every 100,000 people in Cambridge according to the Centre for Cities, three times as many as the J next highest city. It attracted £192m in venture funding across 16 deals in the second quarter of 2018, according to KPMG’s Venture Pulse, one-eighth of the funding received by the UK as a whole. The area’s technology sector employs around 60,000 people, about 12 per cent of the working age population.
"We have busloads of people turning up to figure out why Cambridge is able to support so much profitable innovation and how they can create this same thing," says Frazer Bennett, chief innovation officer at PA Consulting’s technology division, which is based 15 miles from the city. So far, none has succeeded.
In any case, the depth and continuing success of Cambridge’s first wave of hi-tech innovation – AI is a particular forte – is a boon for its burgeoning life sciences cluster. The place is steeped in the kind of tech skills that can cross-pollinate bioscience, serial entrepreneurs and high net-worth seed investors.
"The application of machine learning to life sciences problems is probably the single biggest opportunity there is," says Hermann Hauser, doyen of the Cambridge investment scene, founder of Acorn Computers and the man behind its wildly successful spin-out Arm. An early backer of Solexa, Hauser was so impressed by the founders he went back to the classroom to understand the commercial opportunities in biotech.
This unusual concentration of start-ups in such a compact area creates a crucial network effect. "It’s like a big village. We bump into each other at events, we can connect so easily, so things just happen," says Peter Cowley, serial entrepreneur, investor and chair of the Cambridge Angels, one of the largest angel investor groups in the country, who are informally known as the Cambridge mafia (which also includes the network Cambridge Capital Group). So many start-ups have been formed following a serendipitous lunchtime conversation that entrepreneurs do their utmost to be close to the city.
Such successes have changed Cambridge University’s once fusty intellectual culture. The tech transfer office is no longer one man in a dusty room, but a vast operation – Cambridge Enterprise – that last year supported hundreds of spin-outs, investing £6.3m in patents and seed funding.
Whether their origin lies in the University or the entrepreneurial community, the city’s start-ups are supported by an array of professional services companies. The most prominent are the technical consultancies, notably Cambridge Consultants and PA Consulting, which offer practical expertise and allow local start-ups the luxury of a soft launch by providing lab space, equipment and short-term skilled labour in exchange for a fee.
Seeking to make amends for past missed opportunities, Solexa co-founder Balasubramanian has spun out Cambridge Epigenetix, a company he believes could revolutionise medical diagnosis. "The message is that it takes longer than 10 years to build a great commercial success story. We set up this company with the intention of building something substantial over the long term, with the aspiration not to sell to a big company but to build something large of great, sustainable value. We have brought in investors who are aligned to that vision," says Balasubramanian.
Hauser, whose fingerprints can be found on an astonishing number of Cambridge’s success stories, has his eyes on bigger prey than mere unicorns. Amadeus Capital, which he co-founded, remains the most prominent investor in the city and he is convinced that local synthetic biology firm Evonetix has the potential to become a $10bn business.
Evonetix was founded after a "chance conversation": between Hauser and former Cambridge Consultants CEO Alan Richardson at a dinner in King’s College, where Hauser is an honorary Fellow. The essence of the technology is to grow artificial DNA reliably, at scale, on silicon chips.
The potential is enormous. The ability to ‘write’ a gene to produce a novel drug, rather than having to harvest or modify it from natural sources, could transform drug discovery. Engineering algae to produce hydrocarbons could revolutionise biofuels. Even data storage could be redefined – after four billion years of evolution, DNA encodes exponentially more information than magnetic and solid state hard drives.
Evonetix, which has two small offices at the Chesterford Research Park outside Cambridge, recently raised $12.3m in Series A funding. The ultimate goal – to
put a DNA writer on every bench top – may be many years off, but it’s easy to see why, as an investor, Hauser is excited. "It’s going to be even bigger than gene sequencing. We sold out [of Solexa] too early, but this time we’re not going to sell out, we’re going to build it ourselves."
Not everyone agrees that growing giant companies is the ultimate test of a healthy ecosystem. Cowley, of Cambridge Angels, argues that it doesn’t matter if a foreign competitor buys British, so long as they keep investing in the area, recycling investment capital and start-up talent.
Yet without the ability to scale truly significant companies, Cambridge’s horizons could be narrowed. The most ambitious and gifted entrepreneurs, investors, business development executives and commercially-minded scientists might see it as a stepping stone to somewhere with bigger dreams, a picturesque R&D lab for highly profitable American pharmaceutical companies.
Evonetix is synthesising DNA on silicon chips. Credit: Evonetix
Cambridge is widely seen as the third most significant life sciences cluster in the world after the San Francisco bay area and the undisputed number one, in and around Greater Boston, Massachusetts. Don’t underestimate the gap. In life sciences, as in software, San Francisco is an ecosystem on steroids, pumped up with VC money and outrageously ambitious entrepreneurs. The Massachusetts cluster employs 70,000 J people in biopharma, nearly five times as many as Cambridge.
What would it take for Cambridge to close the gap on its American rivals? There is a morbid temptation to assume that scale is somehow an American birthright. After all, how could a small, somewhat sleepy university city nestled in the Fens possibly match the money-soaked, fast-paced metropolises, San Francisco and Boston, that incubate the largest life sciences hubs?
Yet mighty Massachusetts wasn’t always the superpower in life sciences that it is today, receiving $3.6bn in venture funding in 2017 alone and being responsible for 30 per cent of US biotech IPOs. Little more than a decade ago, it was a fledgling biopharma community, blessed with world-leading universities, research institutes and some exciting companies, but with little history or culture of entrepreneurialism. That didn’t change by accident but through policy, a lesson Cambridge and British policymakers would do well to learn.
The story began during the global financial crisis, when Massachusetts Governor Deval Patrick pushed through legislation to create a $1bn fund for strategic investments in the sector, to be administered over a decade by an arms-length body, the Massachusetts Life Sciences Center (MLSC).
Susan Windham-Bannister ran MLSC until 2015. What she saw was a cluster that had formed around Harvard and MIT, with plenty of potential but no critical mass. "It wasn’t enough to be a cluster. A cluster is just a collection of assets. We needed to be an ecosystem, a supporting environment that enables the innovation life cycle at every stage from research to commercialisation," she says.
Complete ecosystems require hard science, money, talent, facilities, culture and connections. So Windham-Bannister and her team of 15 people set about identifying Massachusetts’ weaknesses and used the MLSC’s resources, backed by crucial private sector investment, to turn them into strengths.
Creating an entrepreneurial environment by building incubator spaces, backing translational research and providing capital for young companies was critical. The MLSC funded employee training – half of the new life sciences jobs created in Massachusetts have gone to people without higher education – and financed the development of more remote, low-cost parts of the state in fields like biomanufacturing to complement the R&D firepower of Greater Boston.
Almost $150m was set aside to entice large pharmaceutical companies to relocate there, partly through tax breaks. Windham-Bannister points out that in 2007, none of the world’s 20 largest pharma groups had a significant operation in Massachusetts; now 17 do. The life sciences scheme was such a triumph that, earlier this year, Massachusetts’ Republican Governor Charlie Baker extended it by five years and $500m.
So what could Cambridge – and the British government – learn from Massachusetts’ success? "You’re missing the pieces that support the development and growth of early-stage companies. You need a fund, an organisation that has this as its mission," says Windham-Bannister. "There’s fantastic science there, and some great start-ups, so I absolutely think it can be addressed, but there needs to be a strategy."
A small city with big ambitions
In some ways, Cambridge is where Massachusetts was 10 years ago. In others, it’s further ahead. The English city already has the entrepreneurial spirit to match its science. It already has – for the time being – plenty of incubation and lab space for new companies. It also has the potential for intriguing synergies between life sciences and hi-tech. What it needs to work on are infrastructure, patient capital and attracting big pharma.
These are not unrelated. Take patient capital, long said to be scarce in this country. The US has twice as much venture capital as the UK relative to the size of its economy, according to the British Business Bank. American companies receive a mean of 2.7 rounds of funding, compared to 1.9 for their British peers, and those rounds are, on average, much larger. The critical difference is that there are more American investors willing to make more and bigger bets with longer pay-offs, allowing their companies to reach super-scale on their own, rather than opting to be acquired, like Solexa, or finding themselves squeezed out of the game.
Like all investment, patient capital essentially depends on perceptions of risk and reward. Cambridge’s second wave of biotech companies are largely still pre-commercialisation and are breaking such new ground that it’s hard to predict a return on investment. That’s also true, to an extent, in the US. It may also be true that investors don’t have as great an appetite for taking risks in the UK because they expect smaller returns. One explanation for that is Cambridge’s relative lack of talent when it comes to scaling and running large companies. The city just doesn’t have all that many large life sciences companies, and many of those that are there have historically used it mainly for R&D.
Why, then, aren’t there more big companies, which Windham-Bannister says "anchor the ecosystem" with their talent and investment? Cambridge is small, it’s true, but it’s surrounded by flat, open countryside. Space isn’t a problem, but infrastructure is. Employment in the city rose nearly 10 per cent last year, putting enormous strain on road and rail networks, and driving up house prices. Big companies don’t move anywhere without having to think about the hundreds of people they’ll need to move or recruit. If Cambridge can’t correct the unfortunate side effects of its rapid growth, it could become a small city with all the problems of a big city: horrendous commutes, a congested centre and a crippling cost of living.
Matching US best practice
These problems are far from insurmountable. Indeed, much progress is already being made. The British government has begun implementing the recommendations of 2017’s Patient Capital Review, creating a £2.5bn Patient Capital Fund at the British Business Bank designed to help high growth companies scale. Discussions are underway to change the rules around investment vehicles to match American best practice by, for example, making tax relief available to larger companies looking to scale up. Hauser describes these measures as "far too little", but it’s a start. J
Cambridge scale-ups are also benefiting from the international nature of biotech investment. A global consortium of investors including UK-based IP Group and Woodford Patient Capital, plus France’s Sofinnova and America’s Pfizer Ventures, has raised £87m for Mission Therapeutics, a world leader in the search for drugs that target DUBs, a recently discovered class of enzymes, and could help treat cancer, neurodegeneration and mitochondrial diseases more effectively.
"People always talk about it being hard to find growth capital, but if you’ve got the right idea and team and are truly meeting an unmet need, capital is available. Most VCs recognise that Cambridge is the key biotech hub in Europe," says Anker Lundemose, CEO of Mission, who used to run a biotech business in Oxford, before setting up his new company in 2011.
Cambridge is also doing better at attracting big businesses. British drug giant AstraZeneca is moving its global HQ to the city. When the group’s office at the Cambridge Biomedical Campus opens in 2020, analysts expect other majors to follow – in the same way that Novartis led an industry-wide move to Boston.
Lundemose is convinced that Cambridge will become more attractive to big pharma firms as they look to start-ups to source their next-generation drugs. "Biotech has completely taken over innovation. Pharma companies have more or less given up. Their own research is not very productive, so they rely more and more on ideas from the biotech industry."
Even in infrastructure, there has been progress, with rail and road being developed and new homes built. There is even talk of an underground railway passing beneath the city’s famous courts and chapels. Unlike in Massachusetts, there is no dedicated central body directing these infrastructure projects, or attracting investors and big companies, with the expressed purpose of developing Cambridge’s technology sector. The people who populate the cluster promote the city vigorously, but informally, while Cambridgeshire and Peterborough’s Combined Authority regional mayor is pushing for progress, but the cash comes from central government, as does the strategy.
No one in Westminster wants to talk about Cambridge. They’re all too focused on the ‘Golden Triangle’, the Oxford-Cambridge-London axis that is central to the UK’s knowledge economy. Even the government’s approach to life sciences, part of its vaunted Industrial Strategy, envisages the triangle as the heart of a UK-wide biotech supercluster.
There may be some wisdom in that. On its own, Cambridge is a plucky underdog, but combined with Oxford and London, it has almost unbeatable credentials – on paper at least. It could be very much like Cambridge, MA, home of Harvard and MIT, sitting at the heart of the life sciences cluster there. The problem is that, at present, no one in the Cambridge or Oxford life sciences sector actually considers themselves to be in the same cluster as the other.
Besides, Cambridge’s village feel is paradoxically one of its greatest strengths. It manages to create a striking sense of camaraderie, spanning hi-tech and life sciences, where businesses meet, mingle and share ideas. This has helped it become one of the world’s most productive birthing grounds for biotech businesses.
It may be that, left to their own devices, this new wave of biotech companies will become market leaders. It may be that Cambridge will become the first British cluster in the past few decades to scale major corporations that compete globally. Entrepreneurs and business leaders like Balasubramanian and Lundemose have the determination and resourcefulness to succeed. The question is: will British policy makers give them the tools they need to finish the job?
Main image credit: Axol Bioscience
This article was originally published in the December 2018 issue of Management Today.