First published in our Biotech Review of the year – issue 9.
That the UK biotech market is undergoing something of an investment boom is by now clear (and the subject of a separate article). But what this trend perhaps belies is the increasing similarities between UK and US markets. Not only are we seeing increased appetite from US investors for UK biotechs, but as a result, we are also seeing greater harmonisation in deal terms between the two markets.
Perhaps the strongest indicators of the US’ growing interest in UK biotech are the point of entry for investment, and the sheer volume of cash flowing in: £10.6bn invested in the first three months of 2021, according to The Guardian. With this growth in capital being deployed, significant sums are being invested into companies at an earlier stage of their lifecycle, where concepts are, at times, still to be proved. If it could once be said that such companies enjoyed a healthy stream of investment, the arrival of US investors has arguably transformed this into a torrent.
|“There’s strong demand for UK-quoted biotech from North American investors (net inflow wof £723m) and European investors (net inflow wof £130m) whereas UK larger institutions continued to be material net sellers in value terms with an outflow wof £231m.” (BioIndustry July 2021)|
This trend of biotechs raising ‘more, earlier’ reflects practice in the US biotech market and UK companies looking to raise funds have been largely willing to embrace it. As such, investors within the UK have had to follow suit and deploy funding in a similar fashion, leading to a shift in how many deals in the UK biotech market are progressing.
Of course, the idea of receiving significant sums at an early stage in a company’s development is an attractive offer. Ultimately, this fundraising model allows for greater security in moving the business forward; more time to consider direction and strategy; and more capacity for R&D to refine the company’s offering. However, whilst a market flush with cash is a healthy one and a queue of willing investors is certainly no bad thing, founders have to guard against giving away more than they had bargained for and/or at a lower price than might have been achieved at a later date.
As US cash continues to flow into the UK market, with it comes a preference for US-style industry documents. And though it might be assumed this could cause something of a headache for UK biotechs and their UK investors who are used to doing things differently, the market has responded with an open mind.
In addition, as the UK investment market has developed and the number of active investors has grown, there has also been an increase in early stage syndicated investment – a strategy which has long been more prevalent in the US. Multiple venture capital firms contributing a smaller amount of the total investment at the outset is now a more widely practised approach in the UK biotech sector.
|“The USA still holds over half of the global biotech sector value share (58.8% in 2021). The UK biotech sector represents almost 3% of the global biotech value in 2021.” (Statista, November 2021)|
Of course, growth on the scale that we’re currently seeing in UK biotech can be fragile. However, the Oxford, Cambridge, and London hubs will always remain globally competitive, and while cash continues flow into these regions, they will only become more so – as will the IP that emerges from them. As the UK biotech market continues to grow, we can probably expect it to remain fuelled in large part by US investor appetite, which shows no sign of diminishing. As such, deal structures and the market as a whole will likely continue to track developments across the Atlantic.