Grants for funding pharmaceutical research: Growing without losing equity
Pre-clinical drug discovery and development work is very expensive and usually takes many years before a commercial return can be generated. This is also the case for the development of medical devices, vaccines, novel therapeutic modalities, etc. Some start-ups are able to offer services to generate early revenue, but – for most – investment is required at startup, and periodically afterwards, to fund the scientific work and company overheads.
Equity investment is the most common route for pre-clinical firms to obtain the cash they need with angel investors and “friends and family” often participating at the seed stage, with venture capital firms (VCs) investing at this or subsequent funding rounds. For example, US biotech attracted $32.2bn in VC investment last year (nearly five times more than the European industry).
Whilst equity investment is likely to be central to the funding strategy of many early-stage biotechs, grant funding can be a very useful alternative.
Using non-dilutive funding to stay mission-led
The obvious advantage of grant funding is that it is non-dilutive. The grant funder provides funds for project costs while the intellectual property developed during the project remains with the company and there is no dilution of equity.
Some grant funders have schemes that focus on “blue sky” projects where risks are higher than commercial funders are typically willing to take. This can be a route to providing proof-of-concept data that helps take the project to the next funding level.
Grant funders can also sometimes provide support in finding collaborators, academic or commercial, that can provide valuable complementary expertise.
Despite these advantages, many companies are put off seeking grant funding. Finding appropriate schemes can be difficult, and there is bureaucracy to navigate that can be daunting for a small company, but some simple guidelines can help open up this attractive additional funding source.
Finding non-dilutive funding
The first step is to think about what sources of funding there are, which will allow you to explore the right options for your business.
In the UK, the research councils, such as the MRC and EPSRC, mostly fund academic research in a university setting; but there are opportunities for joint funding with companies. The research councils are very supportive of increasing the focus on translational research at universities, which these schemes encourage. There is usually a requirement for a company contribution to project costs, but this is often modest, and these schemes tend to have higher success rates for well-written proposals.
Innovate UK is the government’s funding agency whose mission is to help companies to grow through their development and commercialisation of new products, processes, and services. They make frequent online calls for proposals across the whole spectrum of industrial R&D.
The EU Horizon programme is vast and open to UK applicants. Identifying funding calls matching a company’s R&D interests is not straightforward, but the funding levels available can be large.
Many charities support R&D in their area of interest, such as the British Heart Foundation and Cancer Research UK. Historically, these have been directed towards academic groups, but can also fund companies if the work they are doing meets their charitable goals. Grants tend to be small, but the charitable links can provide valuable access to engagement with patient advocacy groups, for example.
Securing grants
Securing grants can be a steep learning curve. It can be hard to understand the jargon and what the funders are expecting to see in a proposal that will score highly. One option is to submit a joint proposal with another academic or company. The European Union Horizon funding scheme includes collaborative schemes where a mixture of companies and academic groups join to investigate a common theme. Some Innovate UK calls also offer the potential for multiple applicants.
If you can join one of these consortia, and the companies you work alongside have had experience in securing grants, it's a great way to learn best practice.
Whether it is as part of a consortium or as a single applicant, the chances of funding success can be greatly increased by taking some simple things into account.
Allow enough time. It is unlikely that a competitive proposal can be written if you only start a few days before the submission deadline. This is especially true if the input from several parties is required.
Funders typically provide a call text stating the scope of the project, what they expect to be delivered, the eligibility criteria for applicants, etc. Keep this constantly in mind; an excellent research plan will not score highly if it is outside the scope of the grant.
Answer the questions. The application will almost certainly be submitted online and there will be questions to be answered, space requirements (page/word limits), and usually a scoring scheme.
Make sure the budget matches the proposed work. Don’t inflate the budget, but also don’t underestimate what is required. Not asking for enough resource to complete the workplan in the stated time is likely to be spotted and penalised.
Companies are focused on their science; that's what they ultimately want to pursue and develop. However, the funding body is looking for more than that. Funding providers want to know how you're going to manage the project, and whether it has clear milestones and progression strategies in place. They are also increasingly interested in how your company will make money out of this and how you will exploit the results. Ensuring you outline every aspect of the project is crucial.
None of this is rocket science, but a great many applications fail to follow one or more of the guidelines and a lot of hard work is wasted.
Other considerations
Grant funding calls are often over-subscribed and success rates can be low. Excellent applications sometimes fail to be funded. However, most funding agencies will allow resubmissions, which is much easier than starting from scratch, and the reviewer feedback can be helpful in improving a resubmitted version.
Grants provide support for project work, but which project costs are eligible will vary from funder to funder. Certain grant schemes will only reimburse a percentage of project costs (for example, a rate of 70% of project costs is typical for Innovate UK calls) so “matching funding” from the company may be required. Another consideration is cash flow, as some grant schemes reimburse project costs in arrears, typically quarterly, so working capital is needed to fund the project until the project costs are claimed.
There will be scientific and financial reporting obligations to be met. It is important to understand from the start what the reporting obligations are, and the level of detail of supporting documentation required by the funding agency.
Funding early-stage R&D intensive companies is challenging at any time, and conditions have been particularly difficult for the last few years. Whilst not a cure-all, grant funding can make a significant contribution to a company’s R&D budget, and success rates can be significantly enhanced by avoiding common pitfalls. A successful grant funding strategy can accelerate project progression, conserve equity and make a valuable contribution to the ultimate success of the business.
About the author
Dr Paul W. Finn has been leading scientific progress at Oxford Drug Design after an extensive career at Pfizer, Smithkline Beecham (GSK), and TopoTarget. His expertise extends over drug discovery and early pharmaceutical development. At TopoTarget, where he was director of R&D, Finn led the preclinical development of Beleodaq, of which he is also an inventor, used to treat patients with peripheral T-cell lymphoma. At Oxford Drug Design he has led the company’s computational drug discovery platform, as well as its drug discovery efforts. Finn studied biochemistry at the University of Oxford and obtained his PhD at the University of Manchester. He is a Professorial Research Fellow at the University of Buckingham School of Computer Science, working at the interface of drug discovery and machine learning.
