The BioIndustry Association (BIA) is hoping a new network of ‘BioAngels’ will ease some of the financing problems that have plagued the UK’s biotechnology sector in recent years.

The initiative is aimed at helping fledgling companies to connect with so-called business angels and other investors looking to put their money into biotech innovation. The BioAngels network will “facilitate communication between emerging organisations and those who may wish to invest” and “widen the circle of potential investors that can be reached by companies just starting out”, the BIA explained, adding that new enterprises often do not know whom to approach for funding.

At a UK meeting last May, the association’s then director of public affairs, Laura Gilbert, identified access to funding as “the top issue” for BIA members. The centre of gravity for investment had moved away from the UK, while investors in general were looking at lower-risk options such as the property market, she pointed out.

Noting that the BioAngels network would be operationally self-funding, the BIA said it was nonetheless “very happy to support the aims” of an initiative focused on leavening “the early funding difficulties so often encountered by our industry’s innovators”. The precise details of how the network will function are still being worked out by the group of potential investors who have so far agreed to join.

Not enough relief
The initiative comes at a time when the biotechnology industry is still smarting from the UK government’s proposed changes to the provisions for capital gains tax (CGT), despite the concessionary “entrepreneurs’ relief” announced by Chancellor Alistair Darling last week.

In the face of strenuous lobbying from industry in general and the bioscience sector in particular, the government is sticking to its basic plan – announced last October in the Pre-Budget Report – to apply a flat-rate CGT of 18% from 6 April 2008.

What moved the BIA to warn that the tax overhaul could “deliver a fatal blow” to the country’s bioscience sector was that the new system will abolish the so-called ‘taper relief’ available on capital gains tax, whereby the amount of tax payable on an asset (including shares) when it is sold can be reduced – down to a minimum rate of 10% – according to how long the asset is held.

Taper relief was introduced by the current Labour government to encourage entrepreneurial investment in long-term assets. There has been concern, however, that the provision is being exploited by wealthy private equity investors to reduce tax on their earnings. For the BIA, though, a flat-rate CGT threatens the long-term investments in small and medium-sized enterprises (SMEs) that are the lifeblood of the biotech industry.

Mr Darling’s entrepreneurs’ relief, revealed after sharp accusations of government ‘dithering’ over the CGT issue, allows small business owners a 10% rate on cumulative lifetime gains of up to £1 million (€1.34 million). These individuals will have to hold a stake of at least 5% in a trading business and also be an employee, company director or other officer of that business.

The BIA was not impressed, insisting that while the Chancellor’s proposals might help small business owners, “much more will need to be done to prevent the exit of funds from the bioscience sector and the resulting delay in innovative new treatments reaching patients”.

Discouraging serial investments
Specifically, the entrepreneurs’ relief ignored the needs of investors in the bioscience sector, such as business angels, who “take the bigger risks for the bigger plays required to develop innovative new medicines”, the association argued. They would also discourage serial investments in a number of companies, seen as an often critical source of early-stage funds for university spin-offs and other start-ups.

There are also fears that the new tax regime will blunt the ability of small high-tech companies to attract talented employees who are willing to trade higher wages at large, established companies for the opportunity to participate in share-option schemes.

“The Chancellor’s commitment to entrepreneurs is admirable,” commented BIA chief executive Aisling Burnand. “However, his proposal does not recognise how business angels and serial entrepreneurs work in the bioscience sector. They are penalised by the need to be directors or employees, the minimum 5% stake threshold and by the £1 million lifetime limit.”