BIA City and Finance Update July 2018

This month Brexit continued to dominate the debate in the City on UK life sciences, but it didn’t stop another strong month for fundraising. Also, in this edition, we explain what SRI means, and meet Syncona, a prominent investor in UK-originated healthcare innovation

Brexit dominates The City debate

As usual, Brexit has dominated the headlines in the City, along with dominating the debate in the biotech sector.  Parliament voting in favour of a Brexit negotiation objective to participate in the European Medicines Regulatory Network was positive for the industry. This vote is likely to have been taken well by investors in UK life sciences too.

The prospect of avoiding unnecessary and costly duplication through membership of the European Medicines Regulatory Network is a boon to UK Life Science, and to its investors. A key component for many investing in life sciences is for an orderly and understandable route to market for their investee businesses. 

What does this mean for UK Biotech?

Many of the arguments around Brexit and the EMA are well-trodden, but if participation in the European Medicines Regulatory Network can be achieved, it is likely that valuations for UK life science business could possibly benefit too.

Fundraising continues well into Q3 after a decent Q2

Numbers out by Silicon Valley Bank for investing in US life sciences for the first half of 2018 showed that performance has been exceptionally strong.  U.S. healthcare venture fundraising reached US$4.5bn and 30 companies went public as opposed to 31 for the whole of 2017. 

Substantial new UK-based funds announced in July are looking for places to put their money. Two to highlight: Abingworth and Wellcome. UK-based VC fund Abingworth announced that US$315M had been raised for its ABV VII fund. The fund will support a wide variety of life sciences companies at different stages in the UK and overseas, with investments between $15m and $30m. Wellcome launched a new and innovative £250m not-for profit-fund that aims to support ambitious research programmes with the potential to change science or transform health fundamentally. So, expect more money to be put to work over the next six to twelve months into a variety of projects – both early and later stage.

What does this mean for UK Biotech?

Another strong month of fundraising in the UK - c£68.5m for public life science businesses - suggests that companies here are also continuing to benefit from the increase in available money from investors.  Fundraising does tend to quieten down as we hit the summer holidays, but barring shocks, investments could actively continue as we head towards the end of the year.

Jargon of the month: SRI

SRI, or Socially Responsible Investing, aims to invest in areas that are deemed ethically and socially responsible. In other words, these funds are targeting positive social impact along with positive financial gain. Companies excluded from these funds tend to be in the weapons, alcohol, gambling and tobacco industries. Though some funds have also been known to avoid pornography, fossil fuel production, animal testing.

While SRI has been around for a number of years under a variety of guises, the United Nations, “UNEP Finance Initiative and the UN Global Compact” was launched in 2006 to formalizes a series of Principles for Responsible Investment (PRI). These have tended to provide a voluntary framework for SRI: “Responsible investment is an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to manage risk better and generate sustainable, long-term returns.” Examples were broken down into three areas: environmental, social and governance. Read more here. These principles mean that many funds actively seek out investments that would deliver social impacts such as community projects and green energy. 

As of August 2017, more than 1,750 signatories from over 50 countries have signed up to the UN Principles. Other large groups such as the Church of England, have also become thought leaders in providing focus on where and where not to invest. 

Though all funds do not follow SRI, it has become increasingly popular: UK domiciled green and ethical retail funds in June 2015 were valued at over £15bn, while total funds (retail and institutional) invested in the UK under broader definitions of sustainable and responsible investment were put at €1.8 trillion at the end of 2013.

Introducing the investor: Syncona

Syncona was formed in December 2016, when BACIT acquired Syncona Partners LLP to form an investment company. This company is now worth £1.67bn. Syncona donates 0.3% of Net Asset Value to a range of charities each year.

Syncona Partners LLP was founded as an independent subsidiary of the Wellcome Trust in September 2012 with evergreen capital of £200m, later expanded to £250m. By December 2016, Syncona had helped to create seven life science businesses. BACIT (Battle Against Cancer Investment Trust) was also established in 2012 aiming to find a cure for cancer via a fund of funds portfolio, which would generate returns for shareholders while investing in oncology research and donating a significant amount to charities each year. By October 2016, BACIT had a £500m market cap and held 32 investments in December 2016. 

What does this mean for UK Biotech?

The company continues to create and invest in companies tackling research areas of interest, delivering transformational medicine. Syncona currently has a Life Sciences portfolio consisting of 9 businesses: Autolus, Nightstar Therapeutics, Blue Earth Diagnostics, Freeline Therapeutics, Achilles Therapeutics, Gyroscope Therapeutics, Cambridge Epigenetix, and the newly minted SwanBio and Orbit Biomedical. Two of these: Autolus and Nightstar recently IPOd on NASDAQ and are currently valued at US$982m and US$408m respectively. With Syncona’s shares of these businesses standing at 32.7% and 42.2% respectively. 

 

This communication should not be regarded as investment research or marketing materials and does not constitute any recommendations to buy or sell shares.