Industry leaders warn the City of London is poised to miss out on the UK's biotech boom

 
Courtney Goldsmith
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The BIA is aiming to make the UK the third-best spot for biotech in the world (Source: Getty)

The UK's biotech industry was thrown into the spotlight last week with a series of reports boasting of the sector’s successes.

The BioIndustry Association (BIA) on Thursday declared Britain’s 2017 pipeline of biotech treatments the strongest in Europe. Meanwhile the London Stock Exchange cheered the 20 per cent rise in funds raised for the wider life sciences sector through public markets to £2.4bn, and data from MedCity being published today zeroed in on investment in London’s life sciences sector, which it said reached nearly £1bn in 2017.

The news is a boon for an industry with the ambition to put the UK on the map as the third biggest hub for bioscience behind US stalwarts San Francisco and Boston, but some industry leaders are worried the City has yet to take notice.

Steve Bates, the chief executive of the BIA, told City A.M. the City of London is missing out on the huge growth opportunity that biotech companies present.

The BIA’s report last week found initial public offerings by UK biotechs raised more than twice as much money in 2017 than in 2016 (£234m compared with £105m), but 90 per cent of the cash raised came through the tech-heavy Nasdaq exchange in the US rather than the London Stock Exchange or its junior market.

“We have a number of truly innovative, world-leading companies around the UK, many under the nose of City investors in London, Cambridge and Oxford,” Bates said.

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Missing a trick

While he admits that the biotech space is complex and involves plenty of risk, he pointed out that City investors have fewer qualms about funneling money into other risky ventures, like digging mines in unstable countries.

With the UK’s world-renowned scientific research base and a recent commitment of government support through the Industrial Strategy, the pieces of the jigsaw are starting to come together, but companies see one glaringly obvious piece missing: a lack of access to permanent capital.

“I think it’s absolutely clear there’s a limited investment pool of what you might call risk capital in the UK in public or private markets.

“To access the large pools of capital needed to develop, companies look to the US,” said Jim Phillips, the chief executive of Midatech, a 16-year-old Oxford-based firm that develops rare cancer treatments which it commercialises in the US.

US investors are more savvy about investing in biotechnology, industry leaders say. Jens Lindqvist, a senior research analyst at N+1 Singer, said UK pension funds and other investing institutions are “rarely equipt” to invest knowledgeably in early stage drug development.

This means biotech-hungry American investors are now starting to seek out undervalued life sciences companies in the UK, said Stuart Paynter, the chief financial officer of Oxford BioMedica, a company that makes the transport mechanisms for cancer treatments for Swiss pharma giant Novartis and is somewhat of a poster child for the UK’s biotech industry.

“I think London is missing a bit of a trick,” said Paynter.

“Some US investors now are raising funds purely to come over to London and pick up undervalued assets.

“They’ve done as much as they can in the US... but they’re seeing more mature companies in Europe not getting the same valuation that, if you picked [the company] up and put on Nasdaq, they would get," he said.

A new measure, the Patient Capital Review, is hoped to breathe new life into the sector by nudging UK pension funds into backing what Bates called a key sector of the future UK economy.

The aim of the review was to identify barriers innovative companies face in gaining access to long-term finance.

“We’re trying to signpost this and make an opportunity that’s quantifiable and understandable,” Bates said.

UK investors are becoming more and more familiar with the potential biotech firms hold, said Joe Anderson, the chief executive of Arix Bioscience, a company that listed in 2017 which finances biotech firms.

But he said the UK needs more companies coming forward with successes, and for that to happen biotechs need access to long-term capital.

“We have an industry poised to deliver significant results,” Anderson said. “Put together with political support and support for patient capital, and the outlook is very promising indeed."

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