Why RedX story is bad news for UK's biotech sector
On July 31 I read a story in the Liverpool Echo headlined: ‘Liverpool Council set to get £3m back from drugs company after loan row.’
The story wouldn’t have merited a second look but for the paragraph under the headline.
It read: ‘Council had called in administrators to RedX but firm has now agreed £30m asset sale.”
It was at this point that I suddenly sat up. RedX had been the poster boy of Liverpool’s biotech sector between 2010-16. It was only in 2013 that it revealed plans to bring 250 jobs to the city by creating a £39m centre of excellence to develop cancer-fighting drugs.
So what went so wrong? How does a company with assets of at least £30m enter administration over an unpaid loan of just £2m? Moreover, how did the relationship between the council and the pharmaceutical firm sour so much it was the local authority who called in the administrators?
I thought it was worthy of investigation because the episode has far reaching consequences for the region and the biotech sector.
The UK already has a reputation for being risk averse when it comes to tech so why would future investors part with their money when RedX had their fingers so spectacularly burnt?
My first port of call was Liverpool Council but they said they couldn’t add to their earlier statements until the administrator had concluded his report and issued it to the Stock Market. We’ll come back to them later.
My second call was to the administrators FRP Advisory, who sent me a number of previous statements but directed other inquiries to the council and RedX.
And finally I approached RedX, who unfortunately aren’t legally allowed to comment because of the administration.
So what do we know? According to official papers filed at Liverpool District Registry Office, administrators were appointed in the case of RedX Pharma PLC on May 24, 2017.
It related to a three-year investment loan the council had made to RedX in 2012 to support their business expansion plans in the city.
In a statement the council said: “Despite agreeing to extend the repayment deadline by two years RedX, who have also relocated to Cheshire, have shown no willingness to make any repayment of any size during this period - despite it raising substantial funds from shareholders over the past few years.”
The loan was due to mature on March 31, 2017, and the council say RedX made no contact with them so they had “no option” but to appoint administrators.
City Mayor Joe Anderson didn’t mince his words over RedX. “This is a highly regrettable situation but Redx have been given more than two years to put their house in order and establish a way to repay this investment loan,” he said.
“Even at the 11th hour the city council was willing to work on a repayment schedule but it is now clear Redx has no intention to work with us in any meaningful way.
“This investment loan was given in good faith and we have a duty to the public to ensure their money, especially during such financial difficulties, is protected.”
Because RedX aren’t allowed to talk I spoke to a number of people in the biotech world and they had a different view.
It’s a matter of record that RedX’s chairman Ian Ross had made Liverpool Council a written offer to repay £1m immediately and the balance within seven days but the firm was still placed into administration, forcing their shares to be suspended.
It put the council into a list of creditors that could only be repaid if the company achieved a fire sale for one of its two big cancer assets, which it did. Again, more about that later.
What happened next was the intervention of influential venture capitalist Jon Moulton, whose business held shares in RedX.
In an article in the Times on May 25 he said investors shouldn’t be wiped out by the administration and was quoted as saying: “Debt can be readily sorted, it was a £2 million debt. Idiotic position.”
On May 29 the Liverpool Echo’s city editor Alistair Houghton wrote another story about Moulton, in which he was quoted as describing the saga as “very damaging to the company”.
He explained: “Obviously its value is in the intellectual property it has (the drugs it was developing). The value of its property will have possibly been very substantially diminished. How much, I don’t know.”
Moulton stopped short of criticising the council but was quoted as saying the £2m loan was a “small problem” considering the company was valued at more than £40m.
But what of RedX? In 2016 its CEO Dr Neil Murray was crowned Science and Innovation Director of the Year at the North West Institute of Directors Director of the Year awards in Manchester’s Hilton Hotel.
It was clear the company was experiencing some cash flow issues. A restructuring had seen it cut its workforce from 199 last year to 84 by effectively closing down one of its three subsidiaries.
However Redx was about to put two cancer drugs into clinical trials, which was hugely significant but also very expensive.
People I’ve spoken to say the company enjoyed a cordial relationship with the city council and had been negotiating with chief executive Ged Fitzgerald. However Fitzgerald had to step aside for an unrelated matter and Mayor Anderson assumed some of his responsibilities.
Although everyone I’ve spoken to accept the council was within its right to call in the loan they say the decision made no sense and point to a number of statements the council made about RedX’s decision to pull out of Liverpool and relocate to Cheshire.
On August 7 I emailed Liverpool Council a raft of questions, one of which was this: Was the decision of RedX to move out of Liverpool in favour of Cheshire a factor in the council calling in administrators?’
There’s no suggestion it was but, as previously mentioned, the council say they can’t add to their earlier statements until the administrator had concluded his report.
I’m told that RedX’s base at the Duncan Building at the University of Liverpool was only meant to be a temporary home and when it outgrew it there was no suitable lab space in Liverpool, forcing them to relocate to Cheshire’s Alderley Park.
The good news is that on July 31 it was announced that FRP Advisory has entered into an unconditional agreement on July 28 for the disposal to US-based Loxo Oncology, “of certain patents, intellectual property, contracts for product manufacture, and physical materials relating to Redx's BTK inhibitor drug development program for the sum of $40m.”
In simple terms what it means is that RedX should come out of administration and Liverpool Council will get its money back.
The council welcomed the announcement and said in a statement: “Today’s announcement proves it was the right course of action when local authorities are seeking to be more commercial in their approach. The council have worked with independent legal and financial advisers throughout the loan period to ensure it maintains a robust approach to managing its investments.
“The council has not only recovered the debt in full but welcomes the news that processes are in place to see the company continuing to operate as a business.”
The hope is RedX will be able to bounce back. They’re about to go into clinical trial with a pancreatic cancer drug so still have considerable intellectual property and assets to fall back on, although that’s not the same as cashflow.
However no-one should be in any doubt that the episode has been extremely damaging, especially in the world of biotech.