Science Foundation Ireland, the Director General and the Renovo Debacle
In the previous post, Stifling Discovery: Science Foundation Ireland’s New Mission and the Jobs Myth, we examined the recent policy shift at Science Foundation Ireland (SFI) that has led to the prioritisation of research commercialisation. From now on, research will only be funded where it can be claimed from the outset that it will make a profit and create jobs. Basic scientific research and discovery will be marginalised and the previous post discussed the perils of this policy. The international evidence also suggests that even the purported economic gains from commercialisation are dubious and that wild claims about job creation are a fantasy of hapless government ministers.
This post examines Renovo, the spin-off company that was founded by SFI’s newly appointed Director General, Mark Ferguson. He was appointed on the back of his commercialisation experience at Renovo. One would expect that Renovo is a model for successful commercialisation but in fact it is a remarkable case study about a resounding failure to commercialise academic research.
Renovo attempted to commercialise the scientific research that Ferguson had carried out at the University of Manchester. It grew rapidly from a small private company in 2000 to a publicly traded company with over 200 staff, claiming possession of “the most advanced regenerative medicine in the world”. It received large sums of money, including £63 million of investors’ money, £58 million of investment from the pharmaceutical company Shire, along with £16.5 million of British tax-payers money in the form of grants and research tax credits.
However, all of the drug products ultimately failed their clinical tests and none were commercialised. In 2011, the scientific research was terminated and all of the employees were laid off. The investors were wiped and the company was delisted from the main stock market.
Despite this, the company directors received very substantial rewards over the five years that it operated as a listed company. Mark Ferguson received £3.6 million including a golden handshake of £700,000 from the derelict company. His wife Sharon O’Kane, the Chief Scientific Officer up to 2010, received over £1.6 million. In addition, between them they netted £9.4 million by exercising a director’s option when the shares were at their peak in 2007.
The Renovo case provides a unique insight into the nexus between financial markets and research science, the concomitant pressure for short term results and the disastrous consequences. It raises serious questions for Science Foundation Ireland, both in terms of its massive drive to pour money into commercialising research and its selection of a Director General to implement this policy.
Crocodiles’ Den: The Science
Renovo was set up by Mark Ferguson in 2000. A native of Northern Ireland, he first attended Queen’s University of Belfast where he qualified as a dentist. In 1984 he moved to the University of Manchester where he worked as professor of biology for the next twenty two years. His research at Manchester studied the healing properties of scars in alligator embryos. He published widely and was promoted to dean of the faculty in 1994.
In 2000, he and his wife Sharon O’Kane (a senior researcher at Manchester University) formed their own spin-off company (Renovo Limited) to commercialise the scar research. The patents and patent applications from Ferguson’s academic research were owned by the University of Manchester but were later handed over to the company in return for a small equity share (Renovo 2006, p14).
Renovo grew rapidly and over the next five years it raised millions from investors, as detailed below. They were attracted by the company’s financial projections that estimated a vast potential market for scar healing drugs. The prospect of scar-free healing after cosmetic surgery was a particularly enticing prospect for profit making.
During this time the company had five main drugs under development: Juvista, Zesteem, Judivex, Adaprev and Prevascar. The lead drug was Juvista and it could be administered by an intradermal injection in a manner similar to botox. Renovo hoped that it could be used on a wide variety of other scars arising from reconstructive, cardiovascular, eye, tendon and nerve surgeries.
The Clinical Trials
Juvista succeeded in early phase one and two clinical trials for efficacy but in 2007 a phase two trial testing it to heal scars after mole removal was a failure (Renovo 2007, p10). A 2008 phase two clinical trial using Juvista to heal scars after breast augmentation surgery also failed as differences between the treated scars and the placebo were not significant (Renovo 2008, p7). Juvista did succeed in trials concerning patient safety and Ferguson assured investors that the failed trials were down to the use of “sub-optimal doses” and “a sub-optimal trial design involving scars of different lengths and anatomical locations“ (Renovo 2009, p7).
Below: Cosmetic Surgery Without Scars – A YouTube Video by Interactive Investor
The outcome of the phase three clinical trial of Juvista in scar revision surgery was announced in February 2011. The results were cataclysmic – Juvista failed both its primary and secondary endpoints as there was no significant difference between the placebo and the treated scar. The failure was unequivocal as the efficacy of Juvista was “insufficient to demonstrate significant benefit when tested in a broad population of scar revision patients” (Renovo 2011, p2).
Ferguson described the trial results as “strange and perplexing’‘. Further analysis by Renovo of the failed trial found that Juvista did not demonstrate any significant benefit when tested in a broad sample of patients (Renovo 2011, p2). In March 2011, it closed down all of the development work on Juvista and laid off all of the remaining 100 Renovo staff.
Zesteem was another product designed to accelerate wound healing. It made some progress in early trials, but in 2008 Renovo’s phase three clinical trial for Zesteem failed to meet its primary endpoint for efficacy and all development on it was terminated (Renovo 2008, p8).
Judivex was a treatment that hoped to improve scarring and accelerate re-epithelialisation. However, in 2009, the phase two clinical trial for Judivex failed as the treatment showed no demonstration of a statistically significant difference in the time to complete wound closure (Renovo 2009, p8).
Another drug, Adaprev was also developed. Renovo hypothesised that this injectable formulation would prevent scarring and improve function following surgical repair of lacerated tendons. The trial results were announced in November 2011 and showed that patients treated with Adaprev had less range of motion than those in the standard care group (Renovo 2011, p2). The development of the drug was cancelled.
In November 2010, the company announced the development of Juvista Paediatric . This was a new scar healing formulation intended for use in children (Renovo 2010, p7). However, the drug was later terminated when Juvista failed in clinical trials.
Prevascar aimed to prevent scarring and restore function after peripheral nerve injury and was in the early phase of trials (Renovo 2006, p9). The trial results were announced on 16 April 2012: the drug failed badly as by month thirteen there was a small but significant improvement in the placebo scar width when compared to the treatment scar.
The Sales Pitch
Renovo never produced a single marketable product, never generated any product revenue and failed in its commercialisation of Ferguson’s alligator research. Indeed, it burned over £100 million of private and state investment. Driving this process was a constant sales pitch about the potential money to be made.
The company was sold to investors as a biotech firm with a ’”deep pipeline with 23 drugs in clinical or pre-clinical development“ (Renovo 2006, p7).
Ferguson promoted Juvista as “the most advanced regenerative medicine in the world“ (Proactive Investors, 2010) and declared that Renovo was the “the world leader in scar reduction research“ (Renovo 2007, p2). He estimated that Juvista could sell for US$400 per treatment and had a market of $4 billion per annum in the US alone (Renovo 2006, p12).
In September 2010, Renovo told investors about a ‘StockTube’ interview with Proactive Investors in which Ferguson explains “why there is little downside risk to investing in his company and why he expects shares to rise significantly“ (Renovo, 2010).
He suggested that the fall in the share price was “nothing specific to the company” and that “if you take the worst case scenario your downside is actually quite low” (Proactive Investors UK, 2010).
The Wipe Out
For the investors who put money into Renovo and bought into the promise of a $4 billion market, no saleable product ever emerged and they were wiped out.
Renovo initially sold £30 million of shares to private venture capital funds in the early years after the formation of the spin-off in 2000. Ferguson was anxious to grow much larger and he set his sights on floating Renovo on the main market of the London stock exchange. Goldman Sachs was hired to manage the sale.
A first attempt in 2005 was ditched but in 2006 Renovo Plc was floated on the London stock market and £63 million of Renovo Plc shares were sold to investors. The initial price was 87 pence and it rose to over £1 in the early trading.
Ferguson then left the university to become the full-time chief executive of Renovo and a new board was appointed with ten other directors. Sharon O’Kane was appointed as the director of research (Renovo 2006, p18).
In June 2007, Renovo sold the non-EU rights for potential future sales of Juvista to Shire Plc, a large biopharmaceutical company. Renovo obtained an initial payment from Shire of US$125 million (£58 million) consisting of a US$75 million upfront cash payment and a US$50 million share investment in Renovo. The deal was hailed by the financial markets and the shares soared to a high of over £2 per share.
By 2009, Renovo had spent over £81 million of the investors cash. With no revenue to show for all of the investment, the share price had fallen well off the earlier peak of £2 in 2007 down to a lowly 20 pence per share.
In April 2009 there was speculation about a takeover bid for Renovo but no buyer emerged. In the wake of the failed deal, fifty employees were laid off in a bid to cut expenditure. Ferguson assured the shareholders that “restructuring would deliver more near-term and long-term value for shareholders than any offer that could have been contemplated“ (Reuters, 2009).
In February 2010, Sharon O’Kane left the company in order to pursue other business interests (Renovo, 2009). She was appointed as the entrepreneur in residence at Manchester University’s intellectual property business and gave masterclasses on spin-out company formation and commercialising university research.
The collapse of Renovo was sealed by the failure of Juvista in the phase three clinical trial in February 2011. Ferguson described the failure as “extremely surprising and disappointing” (Renovo 2011, p2). The shareholders were rocked by the unexpected outcome (see the Interactive Investor Discussion Forum) and the shares plummeted by 75% to a new low of 17 pence.
Shire, the company’s commercialisation partner for Juvista, moved quickly to terminate the licensing agreement with Renovo in March 2011. It was a sore loss for Shire as it lost all of the $75 million dollars that it had paid to Renovo for the licensing rights back in 2007. It also wrote off another $44.3 million on the equity that it had in Renovo as it concluded that the by then 87% decline in value was “other-than-temporary” (Shire 2010 Annual Report, p85).
The collapse of the Shire/Renovo deal was ranked at number two in a list of the top ten biotech deal failures of 2011 that was compiled by the FierceBiotech site. It signaled the start of the winding up of Renovo.
By the end of June 2011 the company laid off all of the 100 remaining staff. The lease on the Renovo premises was surrendered at a cost of £1.6 million (Renovo 2011, p30). The lab equipment and the office furnishings were sold off (Renovo 2011, p3).
The shares in Renovo were delisted from trading on the main market of the stock exchange and put on to the alternative investment market (a trading exchange for small companies). Six of the company directors resigned from the board. The service contracts of the two remaining executive directors, Mark Ferguson (Chief Executive Officer) and David Blain (Chief Financial Officer) were terminated on 30 June 2011 Renovo 2011, p17).
Renovo never sold any products and all of the cash came from the investors (£63 million), Shire (£58 million) and British tax-payers money in the form of research tax credits and other grants (£16.5 million).
The current share price of 16.6 pence per share is a value that is purely based upon a distribution of the only remaining asset which is £36.5 million of unspent investor’s cash which is held by the company. There is some discussion among analysts about whether the company should be liquidated or used as a shell company for another firm to acquire.
Between 2006 and 2011 the total paid to Renovo’s board of directors (including termination payments) was over £11 million (Renovo 2006 to 2011). Mark Ferguson was the highest earner with a total of £3.6 million over the five years. This included bonuses of £971,000 and a payment of £700,000 that was made in June 2011 when his contract as chief executive officer was terminated (Renovo 2011, p17). Renovo also paid an additional total amount of £451,118 into his pension fund over the five years (Renovo 2006 to 2011).
Sharon O’Kane earned a total of £1.6 million over her four years at the company (Renovo 2006 to 2011). This included a post-cessation payment of £200,488 on her resignation as chief scientific officer in February 2010 (Renovo 2010, p36).
In 2007, Ferguson and O’Kane also made huge gains by exercising Renovo share options. On 26 June, under the directors share option scheme, Ferguson and O’Kane acquired over 4.7 million Renovo shares for .004 pence per share (Renovo 2007, p35). They then sold them on to investors at the market price of £2 per share on 2 July (Renovo, 2007). The company had announced the Shire licensing deal on 20 June 2007 and the shares were at their zenith. In a single trade, Ferguson was enriched by £5.9 million and O’Kane by £3.5 million.
The aggregate scale of the directors’ pay and the share rewards is remarkable in light of the fact that Renovo never successfully commercialised a product from any of the drug developments.
In January 2012, Science Foundation Ireland announced the appointment of Mark Ferguson as its new Director General. The Minister for Research and Innovation, Seán Sherlock, expressed his delight that Ireland had secured someone with such “extensive commercialisation experience” and hailed the new appointment as “a tremendous coup” for Ireland. The chair of SFI, Patrick Fottrell, cited Ferguson’s track record of excellence in both the academic and commercial spheres and noted that “his arrival marks the start of a new stage in SFI’s journey”.
Minister Sherlock recently indicated that the salary for the new director was “under consideration by the Minister for Public Expenditure and Reform”. There was controversy in 2010 when the media revealed that the former SFI director was paid a salary of over €250,000.
As discussed in the previous post, international evidence suggests that research commercialisation is never going to generate significant financial returns, while it distorts research culture and undermines the ethos of scientific research. The Renovo debacle illustrates the folly of pursuing commercialisation as the primary research mandate for Ireland.
Indeed, the Renovo debacle raises questions of public interest about research funding priorities. Why has SFI decided to wholly embrace such a failed strategy of research commercialisation? How can Mark Ferguson credibly head up the nation’s principal scientific funding agency on such a commercialisation platform?
All of the sources for this post can be accessed by clicking on the red hyperlinks in the text above.