Life sciences: pandemic gives UK biotech a shot in the arm

Boris Johnson, with customary bravado, insists that Britain can lead the world in life sciences. But the conversion of innovative science into commercial success requires patient capital. Overcoming a historic shortfall will be critical for success.

There are grounds for optimism. A pandemic-driven investment spree made 2020 a standout year. The quoted biotech sector posted a 29 per cent rise, compared with a 12 per cent fall in the FTSE All-Share index, according to advisory group Radnor’s market-cap weighted index. The £1.1bn of secondary fundraising was more than three times that of the previous year. 

The outperformance has continued this year, with a further 15 per cent rise. But most of the 90-odd constituents making up this index — worth roughly £35bn — are small and few newcomers are joining their ranks. When Vaccitech, responsible for the Oxford/AstraZeneca vaccine, opted to go public in the US, it was in good company. Just £200m has been raised by London biotech initial public offerings in the past three years.

A proposal to tweak the listing rules to make London a more attractive place to list will not make much difference. The large US base of specialist investors and analysts provides a warmer welcome. Nasdaq offers more liquidity, a better valuation and a higher profile in the world’s most important market for drug sales.

Oxford Nanopore, which picked London for its IPO, is an exception that proves the rule. It is not a drug developer, but provides tools for them. That has helped it build a revenue stream, bolstering its appeal to London-based investors, which tend to avoid risky start-ups. Risk aversion is often rooted in experience. The failure rate is high. The Radnor index fell nearly 40 per cent over the past 10 years.

Presented with a long-awaited opportunity to book some profits last year, large UK institutions were net sellers of the sector last year — to the tune of £59m. But the number of investors of all types increased, with overseas capital flooding in to fill the gaps. US firms took the lead in many funding rounds, as venture capitalists last year injected a record £1.39bn into the UK sector. That was a quarter of the European total and more than 5 per cent of the world total, according to the UK BioIndustry Association.

UK biotechs can grow with the help of overseas capital. But conservative UK institutions will lose an opportunity to share in that growth.