Some of the key challenges of the 21st century will be biological; ageing populations, antibiotic resistant bacteria, and the threat of epidemics, as illustrated by the spread of the coronavirus, are just a few of the developments that require urgent attention. Startups and scaleups will play an important role in creating market-ready solutions to these global problems. 333 high-growth UK companies in the Life Sciences sector raised equity in 2019, securing a total of £1.10bn in funding. In this article, we will benchmark this performance against the rest of the UK’s high growth fundraising activity, using the latest Beauhurst data. We have defined Life Sciences as companies developing pharmaceuticals, research tools or reagents, and those manufacturing or engineering healthcare products.
In The Deal 2019, the recent update to our annual publication on UK equity fundraising, Beauhurst observed a simultaneous decline in deal numbers alongside a huge increase in the amount of pounds invested. In particular, companies at the Seed stage have taken a large hit in number of deals, dropping to 2014 levels. However, Life Sciences is one of the few sectors that has bucked both of these trends. In 2019, deal numbers were up by 5% and Seed-stage deals up by 6% from 2018. When we look at all UK companies that secured equity in 2019, only 15% of the pounds invested went to Seed stage companies; in the Life Sciences sector, 34% of all pounds invested went to Seed-stage companies. This is a reassuring sign that investors are willing to back younger life sciences companies, against a background of declining investments into companies at this stage. These investments should help ensure the pipeline of future Life Science companies remains healthy.
However, the total amount secured by Life Sciences companies has declined by 26% compared to 2018, whilst the wider ecosystem saw an increase of 58%. Growth stage companies secured just 21% of all pounds invested into Life Sciences companies, while in the wider market, Growth stage companies secured 70% of the pounds invested. This huge proportion was primarily swallowed by a number of ‘mega-deals’, where companies at the Growth stage secured £50m+ in equity in a single round. Life Sciences companies actually secured fewer megadeals (26) in 2019 compared to 2018 (32). This is an unexpected trend, as we would expect companies in the Life Sciences sector to require some of largest injections of capital, to fuel clinical trials, pharmaceutical development and other costly research processes.
What’s preventing growth stage life science companies from securing the large amounts of cash snapped up by their peers in fintech, broadband services, and even healthtech? One argument could be that inventions and solutions in Life Sciences can take a long time to reach the market as they navigate regulatory requirements. Projects at these companies may make less appealing investment opportunities for private equity and venture capital investors with shorter term ROI goals. One could argue that Woodford Investment Management, which was a key fund for high-growth Life Sciences companies, buckled due partly to these impatient expectations. Improved options for patient capital could benefit innovation in the Life Sciences sector in particular.
Government funds are active investors into Life Sciences businesses. Scottish Enterprise and the Development Bank of Wales manage the most active funds in the sector, backing 138 deals between them since 2014. However, the largest deals in equity finance are nearly always led by institutional investment banks, often headquartered abroad. Improving the collaboration and communication between these two different types of investor could elevate the private sector’s interest in the UK’s Life Sciences companies, and facilitate larger deals.
Brexit may also be causing concern among those investing into the Life Sciences space. This industry is particularly affected by regulatory changes and leaving the EU will likely disrupt the checks and processes that companies must go through when expanding into European markets. Key organisations currently involved in the industry are the European Medicines Agency, which licenses all regulated medicines in the EU, the Unitary Patent Court, who handles patent disputes in Europe, and Horizon 2020, the European Investment Fund, who grants millions to UK Life Science companies every year. Developing and managing domestic alternatives to these support systems will take years, a logistical reality that may be deterring investment.
While there are some causes for concern, the general picture of equity investment into UK Life Sciences companies is positive. In 2019, these companies secured the largest number of deals ever, and the second largest amount of investment. This industry, while vital to the future of our species, is particularly sensitive to changes in policy and regulation, as well as the impatience of investors. 2020 will be an important year for reassuring investors that the UK remains a hospitable and globally-minded place to grow a Life Sciences company.
Top deals by UK life sciences companies in 2019
– Achilles Therapeutics, £100M
o Achilles Therapeutics develops therapies that target cancerous tumours without affecting healthy cells.
– BenevolentAI, £72.4M
o BenevolentAI develops artificial intelligence and machine learning technology that aims to speed up scientific discovery through mass analysis of scientific data.
– Gyroscope Therapeutics, £43.9M
o Gyroscope Therapeutics develops gene therapies to tackle age-related macular degeneration.
Top seed stage deals by UK life sciences companies in 2019
– Artios Pharma, £35.0M
o Artios Pharma develops treatments that target DNA Damage Response (DDR) pathways to kill or weaken cancer cells.
– Quell Therapeutics, £35.0M
o Quell Therapeutics develops Treg cell therapies for the treatment of a range of different conditions, such as solid organ transplant rejection.
– MiroBio, £33.6M
o MiroBio develops pharmaceuticals aimed at treating autoimmune and inflammatory disorders.
Author: Ava Scott, Research and Consultancy Associate, Beauhurst